Bond plan is junk, experts say

In NewsLeave a Comment

Reading Time: 2 minutes

By Joel Wass

RyeSAC presidential candidate Dave MacLean has made a multi-million dollar mistake in his promise to increase student bursaries, says a Bay Street financial consultant.

As part of his campaign, MacLean says he plans on creating an additional 400 student bursaries by deferring $2 million of the money RyeSAC currently keeps in multiple bank accounts into a government of Canada bond. MacLean claims he found such a bond that provides a 10 per cent interest rate.

However, Jason Priest, a consultant for TE Financial Consultants, says MacLean’s math doesn’t add up.

“Ten per cent is a bit of a stretch,” says Priest, who is not aware of any Canadian government bond that earns anywhere near 10 per cent. According to the financial consultant, Canada Savings Bonds only yield a 2.5 per cent interest rate in their first year, which is the same rate as a savings account found at most banks in Ontario. Even after five years the most a Canada Savings Bond can mature to is a five per cent interest rate.

“The only time it could have been possible to receive a 10 per cent interest rate [from a Canadian bond] was in the late 80s or the early 90s,” says Priest.

Senior fixed income analyst Marty Balch says MacLean would have to invest the RyeSAC funds into mutual funds with a much greater financial risk than Canada Savings Bond to hope for a 10 per cent interest rate.

“You’d have to dip down into the high-yield market and I can’t recommend that for a student government,” says Balch. “That kind of investing is designed for companies that have a very high debt capacity such as mining or steel companies.”

Balch says organizations investing in the high-yield market generally have a diversified investment portfolio and typically invest more than $500 million. He cites Enron as one company who got stomped by the high-yield market.

MacLean says he has no intention of making an Enron sized error when it comes to RyeSAC funds.

“I don’t want to risk [student] money,” says MacLean. “That’s why I am looking at a Canadian security bond. The only way a Canadian security bond can fail is if Canada declares bankruptcy. We’re using the students’ money that we’ve already hoarded from them and giving it back to them. We are not spending nor gambling students’ money.”

Priest says MacLean is accurate in stating there is little risk of financial loss while investing in Canada Savings Bonds. However, the maximum amount that can be invested into one Canada Savings Bond is $200,000.

MacLean has since admitted the 10 per cent interest bond he was first quoted on was not a Canada Savings Bond, but says his financial consultant has informed him of a 20 year Canadian security bond that provides a seven per cent interest rate. He says he has access to documents that verify the bonds existence, but MacLean was unable to provide evidence prior to the paper’s publication deadline.

“Seven per cent isn’t realistic right now,” says Balch, regarding the accuracy of MacLean’s financial claim. Balch says the highest 20 year Government of Canada bond currently available provides only a 5.5 per cent interest rate. Balch says interest rates are presently very low and is uncertain when they will rise.

Leave a Comment