[Eric]

The brokers I have dealt with over time (BMO, iTrade, CIBC, Royal Bank) hide their bonds trading rates in the spread between the buying and selling price. This spread is very large, 1 to 2%; an order magnitude more than what is charged for stocks. It is actually difficult to get this information out of them.

I have heard of plans to force brokers to be more transparent which might bring their rates down and I realize that I could deal in bonds ETF's instead.

However, I do have some corporate long term bonds, particularly Bell Canada, that I bought when they were depressed. They have appreciated in value quite well and they are giving me a good return. It might be time to sell them. Is there a broker that is better than others when dealing in bonds?

 

[leslie]

In practice there is nothing you can do except sell through the broker who now holds them. Yes, you could phone around and get some quotes, but it will take 3 weeks to transfer the security to a new broker. The price will be different then. And no, there is no way to know which brokerages charge smaller/larger spreads.

 

[Eric]

Thanks Leslie. It is disappointing to see that no broker seized the opportunity to offer better terms and still make a profit - he could attract a lot of business. There is a lack of competition in this area.

 

[humble_pie]

it's not a question of lack of competition imo. In reality, retail investors are not only unwelcome in the bond market, but in fact they're actively frozen out. Bond dealing is still an institutional old boyz network. Nor is this going to change, because the aggregate bond market is colossal, many times greater than the value of all stocks traded on the TMX. It's of strategic importance in canada. It's the national backbone, so to speak. Canada needs this bond market as her huge gateway to passive foreign investment, so she's not going to rattle the old boyz or make them change their private hunting preserve.

and the old boyz, some of whom are known to be, ah, significant gamblers and drinkers ? they're reluctant to split even a block of 1M. Leftover bits of bond issues trickle down to the retail market where they're marked up with huge commish & sold to us peasants. I've been told that anything less than 250K is not worth the bond dealer's time, so he'll charge 2% for what he regards as a pest's intrusion.

meanwhile, owning a bunch of low-cost old corporates including bell - or was that BCE - sounds appealing. What would be wrong with holding them to maturity. Perhaps they could be swapped into an RSP so as to shelter their high-taxed income.

 

[scomac]

It's not quite as bad as you make it out to be. You just have to be ready to buy when an opportunity presents itself. This can be hard to do in a registered account because you don't really want to have a bunch of cash laying in wait on a perpetual basis.

Often times, a retail investor can get a pretty good deal from the bond desk when they are clearing out a new issue. In the spring, I got a very good deal on some 10 year paper from POW. I recall that there was a MFC issue also being cleared out at the time. Recently I have noticed bits of several TransCanada Pipelines stripped issues being offered at 30 to 50 basis points above comparables. If I had some cash available, I'd pick one of these up. As you can see, the deals are available, even to lowly retail investors. You just have to be patient. Sadly, that something that most of us lack.

 

[humble_pie]

totely agree with you. Bits n pieces do trickle down to the retail bond desk. What's interesting is the double double meaning arising from your 2nd paragraph. POW and MFC left over in the spring, you say. The old boyz usually know to price issues to perfection, but these 2 weren't fully taken up, so there were attractive leftovers for retail investors. And look what happened to their common share prices subsequently.

in the reverse situation, which is the subject of this thread, a bond seller with a handful of retail bonds to sell prior to maturity is not going to get mercy out of a stone.

thread also deals with the notion of forcing the bond market, which is now and always has been an over-the-counter market, into some kind of organized and transparent exchange. But the regulators will not have the power to do this soon, because the bond machine, though it may appear quaint, is gigantic & entrenched. Ottawa depends upon this crucial conduit to foreign capital at its regular auctions.

 

[Eric]

Thank-you Humble_pie. I did not know it was that bad. I also dealt in bonds ETFs to avoid the headaches, but I thought that direct bonds had the advantage that their payments were predictable and that the capital could be recovered one day.

I bough the BCE bonds (yes it was BCE) largely for peace of mind. May be I should keep them to maturity; however, their face value has peaked and is now on a slow decline.

Interest rates are bound to go up eventually, which will depress their face value more. So I thought that I should be ready to eat the 2% commission, sell them, stay in cash, and wait for bond prices to fall before I buy again.

They are still no signs of imminent higher interest rates or inflation. So, for now, I am still enjoying their high rate of return.

 

[humble_pie]

if i were lucky enough to own old BCE paper i'd be sitting on the fence too. But either way it looks like a sweet spot for you.

if you keep them: you'd never be able, these days, to match their quality and their return, so they are to enjoy.

if you sell them: you may very well be catching the hi.

also on the fence: your point about advantages of owning bonds outright vs owning bond etfs. Both have merit as you say.

ah, the weather is still mild for sitting outside, even on fences ...

 

[fatcat]

The brokers I have dealt with over time (BMO, iTrade, CIBC, Royal Bank) hide their bonds trading rates in the spread between the buying and selling price. This spread is very large, 1 to 2%; an order magnitude more than what is charged for stocks. It is actually difficult to get this information out of them.

hank cunningham (the ultimate guide to the canadian bond market) did a study where he had wholesale prices for a group of bonds and did some comparison shopping to see how much the markups were and he recommended td waterhouse as offering the best prices to retail investors.....

in practice, i think that retail bond investors just get screwed and this isn't likely to change

you are better off with etf bond funds i think

......or gic's at the moment

 

[ssimps]

I stick with bond ETFs like CBO and CLF, both have low MERs and the trade to asset difference is not usually huge.