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Is there any coherent market for trading bonds where I can enter a low offer
to buy a bond and have that offer continue to be visible to all the major
brokers for an extended period of time?
I found an outfit named Zions Direct that does at least a decent job of
taking your offer and broadcasting it to the brokers, but this is a one-day
service, and the offer doesn't get permanently entered on a good until
cancelled basis. It would be very time consuming to have to call in the
same order every day for weeks or months. Zions is using the Bonddesk
institutional trading platform, and I guess that doesn't even show them the
individual offers from each broker. So it's very primitive overall.
Given the bond market is many times larger than the stock market, how can it
be so completely untransparent and so backwards? It feels like the bond
market is 30 years behind where the stock market is today.
Is there any broker or platform that would permanently advertise an offer to
buy or sell a bond at a particular price for an extended time period?
--
W
On Nov 25, 7:48 pm, "W" <p...@s...com> wrote:
> Is there any coherent market for trading bonds
[snip]
> --
> W
Twenty years ago, municipal quotes were easy to get, as was a
prospectus. Bonds fluctuate less than stocks (supposedly), so that may
be a factor. IMO, the institutional buyers have come to "own" the bond
market. I've heard many municipal issues are sold in their entirety to
one institutional buyer, without ever becoming public. Around 1992,
the time of the Orange Cty CA debacle, I tried putting in a bid for a
neighboring county's bond - none were available, but the bid/ask was
77/94 or thereabouts. The broker said, "We have none in inventory."
The justification is lowering costs of issue, and bonds are apparently
a different world, but I think it's a flaw in the market system, as
you have noted. That said, it's easy to get quotes on Treasuries. The
WSJ lists some corporates. Any idea where to get quotes on CDS's?
"dapperdobbs" <G...@h...com> wrote in message
news:81563c42-81ac-406b-85f7-240daf6228b3@k8g2000yqn
.googlegroups.com...
> On Nov 25, 7:48 pm, "W" <p...@s...com> wrote:
>> Is there any coherent market for trading bonds
> [snip]
>> --
>> W
>
> Twenty years ago, municipal quotes were easy to get, as was a
> prospectus. Bonds fluctuate less than stocks (supposedly), so that may
> be a factor. IMO, the institutional buyers have come to "own" the bond
> market. I've heard many municipal issues are sold in their entirety to
> one institutional buyer, without ever becoming public. Around 1992,
> the time of the Orange Cty CA debacle, I tried putting in a bid for a
> neighboring county's bond - none were available, but the bid/ask was
> 77/94 or thereabouts. The broker said, "We have none in inventory."
>
> The justification is lowering costs of issue, and bonds are apparently
> a different world, but I think it's a flaw in the market system, as
> you have noted. That said, it's easy to get quotes on Treasuries. The
> WSJ lists some corporates. Any idea where to get quotes on CDS's?
The whole CDS thing is a complete debacle at every level:
1) Retail investors cannot even participate in the market. The minimum
purchase of a CDS is normally $5 Million, and it is a carefully negotiated
instrument with lots of custom contract terms. The way they work is that
the buyer buys $5M of insurance on a bond or issuer and pays the CDS spread
as an insurance payment for recovering in case of default. In case of
default, there is an auction to determine the recovery percentage, and the
insurance contract pays the difference. If the recovery on defaulting
bonds is seven cents on the dollar, then the CDS to insure that bond pays 93
cents (the difference). Some of the hedge funds that used these things
were paying 1/2 of 1% to insure against a failure of Bear Stearns or Lehman,
and then walked away with a 93% payout. That's a 180x payoff, and there
are stories of many wealthy individuals who turned $25M investments into $1B
or more by betting against the investment banks by CDS instruments.
2) The values of specific CDS are kept hidden by market participants, who
demand payments of huge amounts of money to see the bid and ask. It is a
completely non transparent market if you are worth less than $100M and can
afford to spend $100K per year to get the "subscriptions" to CDS price data.
3) Do people understand what is happening with these government "bailouts"
to AIG and some of the larger banks? Some of these hedge funds have taken
out CDS contracts that exceed the actual value of the asset being protected
10, 20, and 30 times over!! The government "bailout" money is largely
being used to pay off speculators who bought these CDS contracts and who had
no underlying economic interests in the entity they were insuring. To me
that is obscene, and yet the commentators on TV just don't seem to get it,
and don't explain it correctly.
I read somewhere that if enough businesses fail in 2009, there wouldn't be
enough money in Europe and the U.S. together to cover the losses, if all of
the speculative buyers of CDS contracts were actually paid off. There is a
great article about this here:
http://us1.institutionalriskanalytics.com/pub/IRAMai
n.asp
I agree completely with the author's suggestions here: use prepackaged
Chapter 11 bankruptcies to pay off CDS contracts where legitimate economic
interests were involved (e.g., a bank that wanted to insure its loan
portfolio) but wipe out the speculators in the bankruptcy. The entire
financial crisis would largely just go away if they followed that
suggestion. Avoiding Chapter 11 and relying on bailouts is just throwing
huge amounts of taxpayer money at paying off speculators, by paying AIG and
banks to honor the CDS obligations they wrote to speculators who had no
interests in the stocks they were "protecting". The whole CDS idea is
flawed as implemented, and we need some leadership that can get their arms
around this fast and neutralize it.
--
W
======================================= MODERATOR'S COMMENT:
A reminder to all posters: Please trim the post you respond to and try to be as
succinct as possible.
On Nov 27, 6:19 am, "W" <p...@s...com> wrote:
>
> The whole CDS thing is a complete debacle at every level:
Yes, it would appear that at many levels, we've been had.
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