Canadian Bonds Yield 13%, One of World’s Top Rates

Canada is home to some of the highest-yielding government securities in the world these days.

Yields on 30-day Canadian Treasury bills are running at 13%--5.45 percentage points higher than the U.S. rate.

Canadian interest rates have been rising since 1988, said Lloyd G. Atkinson, chief economist at the Bank of Montreal in Toronto. “It has attracted an awful lot of capital,” he said.

Although yields are similarly high in Australia and Britain, Canada provides American investors with a psychological comfort level because of its proximity and likeness to the United States. Plus, American investors aren’t hit with foreign tariffs--only U.S. capital gains taxes.

Typically, American investment houses that offer clients Canadian securities participate in the Bank of Canada’s regular weekly auction of securities. The brokerages then resell the bonds to the public.

Because of bookkeeping responsibilities and costs, brokerages must sell the bonds in higher denominations than are available through the Canadian government. Dean Witter Reynolds Inc., for example, requires a minimum investment of $10,000 in a 90-day bond, even though a Canadian dealer could offer it at $1,000.

Smaller denominations are available through Canadian brokerages, but U.S. investors would have to open an account in Canada.

Investment houses also handle currency exchanges at both ends of the transaction. Rather than charge a commission, Dean Witter covers its costs by reducing the yield on the security. Typically, it offers between 12.25% and 12.5% for a Canadian bond yielding 13%.

Despite the attractiveness of the investment, there is a risk--the Canadian dollar, which could have weakened by the time the bond has matured. Experts say a one-cent decline in the Canadian dollar would wipe out the benefit of the high yield.

Still, the Canadian dollar historically has been less volatile than other currencies, experts say. And it has fluctuated in a relatively narrow band.

Since 1989, it has gone for between 82.52 and 88.60 U.S. cents.