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Government bonds get most of the attention in the Canadian fixed-income world, but corporate bonds are where the yields get more interesting. If you’re willing to take on a bit more risk than government debt offers, corporate bonds can provide meaningfully higher income, and they’re more accessible to retail investors than most people assume.
This guide covers what corporate bonds are, how they compare to government bonds, the difference between investment-grade and high-yield, and the practical steps to buy them. For the fundamentals on how bonds work in Canada, we have a separate page.
What Are Corporate Bonds?
A corporate bond is a debt instrument issued by a company to raise capital. When you buy one, you’re lending money to that company. In return, the company pays you a fixed coupon (interest) on a regular schedule, typically semi-annually in Canada, and returns your principal (face value) at maturity.
Corporate bonds in Canada are issued by a wide range of companies: banks, telecoms, energy producers, utilities, and more. The key difference from government bonds is credit risk. Companies can default. Governments (especially the federal government) almost never do. That additional risk is why corporate bonds pay higher yields.
How Do Corporate Bonds Compare to Government Bonds in Canada?
If you’re coming from government bonds, here’s what changes with corporate bonds:
| Factor | Corporate Bonds | Government Bonds |
| Yield | Higher, compensates for credit risk | Lower, reflects minimal default risk |
| Credit risk | Moderate to high, depending on issuer | Very low (federal) to low (provincial) |
| Liquidity | Lower, some issues trade infrequently | Higher, especially federal bonds |
| Minimum investment | $1,000-$5,000 for individual bonds | $5,000+ for individual bonds |
| Default protection | None, risk of partial or total loss | Backed by government’s taxing power |
The yield difference between a corporate bond and a comparable government bond is called the “spread.” A wider spread means the market perceives more risk in that issuer. Spreads vary by company, credit rating, and market conditions.
What Types of Corporate Bonds Are Available in Canada?
Investment-Grade Corporate Bonds
Investment-grade corporate bonds in Canada are issued by financially stable companies with credit ratings of BBB- or higher from agencies like DBRS Morningstar, S&P, or Moody’s. These are the blue-chip end of the corporate bond market, major banks, established telecoms, large utilities. Default rates on investment-grade bonds are historically very low, though not zero.
For most Canadian retail investors, investment-grade corporate bonds represent the practical sweet spot: meaningfully higher yields than government bonds, with credit risk that’s elevated but still manageable.
High-Yield (Non-Investment-Grade) Corporate Bonds
High-yield corporate bonds in Canada, sometimes called junk bonds, come from issuers rated below BBB-. These companies carry higher default risk, which is why they need to offer higher coupon rates to attract investors. The Canadian high-yield market is smaller than its US counterpart, and retail access to individual high-yield bonds is more limited.
High-yield bonds can deliver strong returns when the issuing company performs well, but the downside risk is real. If the company defaults, bondholders may recover only a fraction of their investment, or nothing. These are not beginner-level instruments.
How to Buy Corporate Bonds in Canada
Direct Purchase Through a Self-Directed Brokerage
Most Canadian brokerages offer access to corporate bonds through their fixed-income desk. You can search for available bonds by issuer name, maturity date, coupon rate, or credit rating. Individual corporate bonds are typically sold in increments of $1,000 face value, with many brokerages requiring a minimum purchase of $5,000.
When buying directly, pay attention to the bid-ask spread, the difference between what buyers are offering and what sellers want. Corporate bonds, especially less actively traded issues, can have wider spreads than government bonds, which means your effective cost is higher. Liquidity is also a consideration: some corporate bonds trade infrequently, which can make selling before maturity more difficult.
Through a Corporate Bond ETF
For most retail investors, a corporate bond ETF in Canada is the more practical route. An ETF holds a diversified basket of corporate bonds, trades on the TSX like a stock, and has no fixed minimum investment beyond the price of one unit. You get instant diversification across dozens or hundreds of issuers, which significantly reduces the impact of any single default.
Corporate bond ETFs come in different flavours, some focus exclusively on investment-grade bonds, others include high-yield exposure, and some target specific maturities (short-term, medium-term). A management fee (MER) applies, typically in the range of 0.05% to 0.30%, which is modest relative to the diversification benefit.
What Should I Consider Before Buying Corporate Bonds in Canada?
- Credit rating. This is the single most important factor. A bond’s credit rating from agencies like DBRS Morningstar, S&P, or Moody’s gives you a standardized assessment of the issuer’s ability to repay. Investment-grade (BBB- and above) means lower risk. Below that is high-yield territory, higher return potential, but materially higher default risk.
- Yield vs. risk. A higher yield isn’t free money, it’s compensation for higher risk. If a corporate bond is paying significantly more than a comparable government bond, ask why. The spread reflects the market’s assessment of that issuer’s creditworthiness.
- Liquidity. Government bonds are highly liquid. Corporate bonds, especially from smaller issuers, can be harder to sell before maturity. If you might need your money before the bond matures, an ETF offers better liquidity than an individual bond.
- Account type. Corporate bond interest is taxed as ordinary income at your full marginal rate. Holding corporate bonds in a TFSA or RRSP can make a significant difference to your after-tax return. For details, see our page on how are bonds taxed in Canada.
- ETF vs. individual bond. Individual bonds give you a known return if held to maturity. ETFs give you diversification and lower minimums, but your return fluctuates daily. If you’re investing less than $25,000 in corporate bonds, an ETF is almost certainly the more practical choice.
- Default risk. Unlike government bonds, there’s a real possibility of losing money if the issuer defaults. Bondholders are ahead of shareholders in a bankruptcy, but recovery rates vary widely. Diversification, whether through multiple individual bonds or an ETF, is the best protection.
For a broader perspective on bond investing options, see our guide on how to invest in bonds Canada.
Frequently Asked Questions
What is the minimum amount to invest in corporate bonds in Canada?
Individual corporate bonds are typically sold in $1,000 face value increments, with most brokerages requiring a minimum of $5,000. Corporate bond ETFs have no fixed minimum, you just need enough to buy one unit, usually under $50.
Can I hold corporate bonds in a TFSA or RRSP?
Yes. Both individual corporate bonds and corporate bond ETFs can be held in TFSAs, RRSPs, and FHSAs. A TFSA is particularly tax-efficient for bond interest, since the income is fully sheltered.
How do I check the credit rating of a corporate bond in Canada?
Credit ratings are published by agencies like DBRS Morningstar, S&P Global Ratings, and Moody’s. Your brokerage platform will typically display the credit rating alongside other bond details. You can also look up ratings directly on the agencies’ websites.
What is the difference between investment-grade and high-yield corporate bonds?
Investment-grade bonds are rated BBB- or higher and come from financially stable issuers with low default risk. High-yield bonds are rated below BBB-, carry higher default risk, and offer higher yields to compensate. High-yield bonds are sometimes called junk bonds.
Are corporate bond ETFs less risky than buying individual corporate bonds?
In terms of default risk, yes, an ETF spreads your investment across many issuers, so a single default has a much smaller impact. However, ETFs introduce price fluctuation and don’t have a fixed maturity date, so you lose the predictability of holding a single bond to term.
What happens to my corporate bond investment if the company defaults?
In a default, bondholders are prioritized ahead of shareholders in the recovery process, but there’s no guarantee of full repayment. Recovery rates depend on the company’s remaining assets and the specifics of the bankruptcy. Some bondholders recover most of their investment; others recover very little.
How are corporate bonds taxed in Canada?
Interest payments are taxed as ordinary income at your marginal rate, the same as employment income. If you sell a bond at a profit before maturity, the gain is treated as a capital gain with a 50% inclusion rate. Holding in a TFSA eliminates tax entirely.
Can retail investors in Canada buy corporate bonds directly?
Yes. Most Canadian self-directed brokerages provide access to corporate bonds through their fixed-income trading desk. Selection varies by brokerage, and less actively traded bonds may have wider spreads. For smaller portfolios, a corporate bond ETF is often the more practical approach.
The information provided on this website is for educational and informational purposes only and should not be construed as financial, investment, or trading advice. We are not licensed financial advisors, brokers, or dealers. Always conduct your own research and consult with a qualified financial professional before making any investment decisions. Past performance is not indicative of future results, and all investments carry risk, including the potential loss of principal.
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