The U.S. sold 30 year bonds yesterday with a yield of 3.23%. treasurydirect.gov.pdf
Today, I am only going to discuss one purchase made last Wednesday, which I believe to contain some valuable general information to those investors interested in purchasing bonds. I am going to focus primarily on the mechanics of the trade, and the offerings from two different brokerages on the same bond.
Today, I am only going to discuss one purchase made last Wednesday, which I believe to contain some valuable general information to those investors interested in purchasing bonds. I am going to focus primarily on the mechanics of the trade, and the offerings from two different brokerages on the same bond.
1. Bought Back 1 Albertsons 7.75% Senior Bond Maturing 6/15/2026 at 80 Last Wednesday-ROTH IRA (Junk Bond Ladder Strategy) (see Disclaimer): For the first time, I opened the Order Books for two separate brokerage firms at the exact same time. I noted a slight difference in the ask price for two separate firms on this bond.
Both firms showed a quantity of 98 with a minimum buy order of 1 bond. So, there was no question in my mind that both brokerage firms were dealing with the same seller.
I bought this bond in the Roth IRA account at Vanguard and this is a snapshot of the order just before I placed it:
As shown in this snapshot, the price for the bond was 80. The current yield at a total cost of 80.2 would be about 9.66%. The YTM would be higher due to the discount to par value.
Vanguard has a slightly different order book display than Fidelity. This is a snapshot of available Albertson bonds taken shortly before I placed the order:
To click to other quotes for a particular bond, I would need to click "more", but I can not trade online yet based on those other quotes. I could do that at Fidelity. This is a plus for Fidelity since the best quote may have a higher minimum requirement higher than I want to buy. In this case, the minimum order was 1 at the price of 80, and I could have bought up to 98 at that price.
The difference was that the Fidelity order book showed the price at 80.165:
Please note the same quantity and minimum as the Vanguard order book. I did a simulated purchase of that bond, without finalizing the order, and the Fidelity commission would have been tacked onto that 80.165 number bringing the total cost to 80.925 plus accrued interest. I made a snapshot of that simulated trade which I did not complete:
I actually completed the Vanguard transaction at a total cost of 80.2.
After I completed the purchase, both the Fidelity and Vanguard order books reflected my purchase by showing the quantity then available at 97. There was no question that both books were reflecting the same seller:
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| Snapshot of just that Seller After my 1 Bond Buy-Fidelity |
Apparently, there was a mark-up for some reason at Fidelity.
Albertsons was acquired by SuperValu. This bond is now a SVU obligation.
I have previously bought and sold it. I bought this bond at the same price as last Wednesday back in February 2011: BOUGHT 1 Albertsons Bond Maturing 2026 at 80 I subsequently sold it at 88.3 last May.
Prospectus: www.sec.gov
FINRA Information on this bond.
I discussed SVU's earnings report in yesterday's post.
There were no published bids to buy this bond last Wednesday.
There were no published bids to buy this bond last Wednesday.
a few additional notes:
ReplyDeleteMy sense is that Fidelity is always trying to make an extra buck or two on bond transactions. Mainly on those they own (they sometimes buy bonds as a courtesy for their customers or for their own trading when there are no external offers). To see how high their markup is just ask their bond desk for a quote and compare it with recent FINRA reported prices.
They used to mark such bond in their listings with an asterisk signifying their own inventory. Not any longer. However you can tell whether a bond is theirs is by checking whether it is still listed on their site after the market close.
It USED to be you could counter their offers. Maximum allowed was 1%, quite significant for long term issues.
Whether they permit it these days I don't know, don't trade bonds that much now, doesn't hurt to try though, they will cancel your offer automatically within minutes if they don't like it or you will simply get "no counter offers accepted for this security" when placing the order for an externally held issue. No harm done, you can always resubmit your order later at their listed price.
Also they seem to reevaluate prices for bonds in their inventory usually in the middle of the day, sometimes however much more often. Worth watching it for a while for actively traded issues or when something is in the air (industry, issuer, general conditions, etc).
In the case of this 2026 Albertsons bond, the Vanguard book and FINRA reflected the 1 bond buy almost immediately whereas it took several minutes for the Fidelity order book to reflect it. That suggested, though does not prove, that the seller was not Fidelity or a Fidelity customer. If that is a correct assumption, then Fidelity was marking up another dealer's ask price to capture a spread as a non-originating dealer.
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