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As I learn about bonds one thing is becoming obvious: the price
transparency and low transaction costs that we take for granted with stocks
simply do not exist with bonds. When you examine a statement of bond
trades, the transaction costs for the bond trade are not your real expenses.
The real expense is that the bond department of the broker you are using is
buying those bonds cheaper than the sale price on your statement and then
marking them up between 1.5% and 5%. According to one source I read, "97
of the 100 most excessive municipal trades included markups ranging from
6.753% to 15%...." And these expenses are on top of the bond transaction
fee.
To me it is outrageously anti-consumer that people make investments paying
3% to 6% and end up losing most of their first year income in a hidden
transaction cost. Are there any bond brokers who service retail customers
who will show you openly the actual transaction cost to buy your bond, and
then mark that up at a published price (e.g., 1/2 of 1% of the bond price)?
In the middle of a major financial catastrophe like the one we are going
through, it would also be important for the company to be cash-rich and have
no material mortgage bond investments on their balance sheet.
In terms of seeing bond trade data, what vendors can we pay to see the raw
trade data, exposing the "Sale to Customer" and "Purchase from Customer"
trades as completely separate from the "Inter-Dealer" trades? Having that
data lets me clearly see - at least for an illiquid bond - what my broker is
marking up his trades for.
What other hidden costs exist in the bond market?
--
Will
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Short-term Fund purchasing advice...
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