Bond Investors Want Better Pricing Information


A study by the Charles Schwab Corporation indicates that retail investors want more information about the bonds they invest in, specifically, the base price of bonds and the amount of the markup by brokers. Andrew Osterland’s recent InvestmentNews article entitled “Bond buyers in the dark about broker markups ? and not happy about it” discusses this study. Schwab arranged for the study in connection with promoting its BondSource platform. It reportedly provides access to new bond issues from more than 200 dealers, as well as in the secondary bond market, at a price of $1 per bond.

“The fixed income markets are very different from equities,” Peter Crawford, a senior vice-president at Schwab, was quoted as saying, adding: “They are much less transparent and less competitive on pricing. Investors are much more confused about the bond markets than they are about the equities markets”

The study covered 510 investors with a minimum of $250,000 in investable assets with at least $25,000 invested directly in bonds that were purchased within the last two years. Respondents ranged in age from 25 and 75 and had an average of $1.8 million in investable assets, with $486,000 of it invested in individual bonds.

Approximately 75% said they wanted pricing details on their bond transactions; 44% said they were unable to determine what the mark-ups on their purchases were; 24% did not understand how the bond selling firm was compensated; 66% said competitive pricing on bond purchases was extremely important; 60% understood that prices vary among firms; 40% said they did not know how to get the best prices on bonds; and 38% said shopping for bonds was too complicated.

Respondents thought the average mark-up on a $1,000 bond was $6.10, whereas the mark-ups can actually run as high as $20, even $30 per bond.

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