Barrier Coupon Notes in Canada
Barrier coupon notes (also called contingent coupon notes) pay a coupon only when the underlier is above a specified payment threshold on the observation date. Unlike fixed coupon notes, the coupon is not guaranteed - payment depends on the underlier's performance on each observation date.
Return Profile
For illustrative purposes only. Actual returns depend on specific note terms.
How It Works
On each observation date, the index is compared to the coupon payment threshold (e.g. 70% of the initial level).
If the index is at or above the threshold, you receive the coupon for that period.
If the index is below the threshold, no coupon is paid for that period.
At maturity, if the index is above the barrier level, you get your full principal back.
If the index is below the barrier at maturity, you suffer a loss proportional to the index decline.
Investor Suitability
- Income investors willing to accept variable cash flow for higher potential yield
- Slightly bearish to slightly bullish market outlook
- Comfortable with the possibility of receiving no coupon in down periods
- Short- to medium-term holding period
- RRSP, RRIF, RESP, and TFSA eligible
Investment Considerations
- Coupons are not guaranteed - you receive nothing if the index is below the threshold
- Your principal is at risk if the index breaches the barrier at maturity
- Barrier protection only applies if you hold to maturity
- Payments depend on the issuing bank's creditworthiness
- Selling before maturity on the secondary market may result in a loss
- Early trading fees may apply
- Taxed as interest income outside registered accounts
- Not covered by CDIC deposit insurance
Currently Available (10+)
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For educational purposes only. Not investment advice. Information may contain errors or omissions. Consult a qualified financial advisor before making investment decisions.
