Putting out orders for individual bonds

[Retireby45ish]

Was doing a bit of digging into corporate bonds today and was wondering if anyone else puts out orders to see if they’ll get filled at “good” prices.

For example the bid ask spread on corporate bonds can be pretty wide. One John Deer bond was basically 100.3 at 103 which in yield terms is about 2.7% at 1.4%. Now I might want to hold this bond but I’d love 2.7% rather than 1.4% by trading vs the current best price.
You can, on fidelity, look through all the prices it has traded. And it trades plenty back and forth (every 2 or 3 days).

Does anyone go through and place an order in each day hoping to get filled at something like 2.6% and just wait until they trade? Apparently you can’t enter GTC and can only enter Day orders each morning.

Also, I was surprised that the yields on these Aa and higher bonds were around 1-2.5% when you can buy BND and get about 2.5% yield or so. But of course buying and holding these is different than the ETF which can swing.

Interesting world of bonds. Not quite sure If worth trading a bunch of individuals vs just plunking down for the ETF or Mutual fund. Thoughts?

 

[COcheesehead]

I am more of a muni bond guy and I try and buy bonds below ask from time to time. Rarely are they filled, but I have gotten one or two.
Another data point is look at the 3rd party price to see the spread and depth of book. You might interesting anomalies there too.

 

[Retireby45ish]

I am more of a muni bond guy and I try and buy bonds below ask from time to time. Rarely are they filled, but I have gotten one or two.
Another data point is look at the 3rd party price to see the spread and depth of book. You might interesting anomalies there too.

Yep I can see the depth of book and also all the prices that have traded. Looks like it’s all over the place which is why I wasn’t dying to cross the spread.

I did look and on something like Apple bonds the spread is tight and liquid. 1.29% at 1.35%. I def like those over CDs (7 year maturity) at about same rates, since I can sell them back out if needed...assuming rates are about the same on them.

I also note when I put an order someone else put one in just above mine. Must be a professional bond trader. Sheesh.

 

[OldShooter]

Was doing a bit of digging into corporate bonds today and was wondering if anyone else puts out orders to see if they’ll get filled at “good” prices. ... Thoughts?

If it were me, I would just call the Schwab bond desk and ask them my questions, including the GTC issue. Maybe if you go through meat-based order entry you can do GTC. Schwab is very willing to help. Probably Fido has a similar resource.

 

[Retireby45ish]

If it were me, I would just call the Schwab bond desk and ask them my questions, including the GTC issue. Maybe if you go through meat-based order entry you can do GTC. Schwab is very willing to help. Probably Fido has a similar resource.

I did call them and they said you do need to enter them every day. Only day orders. No good till cancel (GTC).

 

[OldShooter]

Did they have any comments on your proposed strategy? Likely they have seen it before and could comment yea/nay on likelihood of success.

 

[jazz4cash]

Last muni I bought, I looked at the recent trades and bid 2/3 of the difference between the last trade of similar size and the ask. It filled immediately. That was at Fido.

 

[Retireby45ish]

Did they have any comments on your proposed strategy? Likely they have seen it before and could comment yea/nay on likelihood of success.

I asked and they didn’t say much. Just said that it could take a while and that I would have to do it each day. I assume someone who knew more could research and do this effectively and maybe get decent orders if they did this for a bunch of securities. Some prices in the history look totally nuts...but also I assume there are professionals that might also be the ones gobbling up the great orders.

 

[DrRoy]

I have never had a bond buy trade unless I accepted the market ask.

 

[53anddone]

Same Here

I have never had a bond buy trade unless I accepted the market ask.

I have bought many munis on Fido and never been successful at anything other than the ask. I will say that I live in a small state and I expect what i'm buying is a fairly limited market.

 

[njhowie]

I have bought many munis on Fido and never been successful at anything other than the ask. I will say that I live in a small state and I expect what i'm buying is a fairly limited market.

I routinely get below the ask with Fidelity. Success rate is maybe 50%, but it is also very dependent on the bond, the prior sale price, along with current market condition.

I just bought one about 20 minutes ago below ask, here is the info:

https://emma.msrb.org/Security/Details/?id=597009EK1

Last trade today is mine. Ask was 101.274, seeing the prior sale was 100.274, I bid 100.8. Executed about 5 minutes later.

https://imgur.com/a/mdkywDq

 

[Retireby45ish]

I routinely get below the ask with Fidelity. Success rate is maybe 50%, but it is also very dependent on the bond, the prior sale price, along with current market condition.

I just bought one about 20 minutes ago below ask, here is the info:

https://emma.msrb.org/Security/Details/?id=597009EK1

Last trade today is mine. Ask was 101.274, seeing the prior sale was 100.274, I bid 100.8. Executed about 5 minutes later.

https://imgur.com/a/mdkywDq

Yes so you got it for a yield of 2.795%. But 8 mins prior someone got it for 4.52%!!!! I want their trade!! Wtf?!

 

[njhowie]

Yes so you got it for a yield of 2.795%. But 8 mins prior someone got it for 4.52%!!!! I want their trade!! Wtf?!


View attachment 35264

LOL - do we need to go over the basics here, regarding yield to maturity and yield to call, because I really don't want to.

Please make sure you understand what the yields represent.

When you understand what you're looking at, then we can discuss further if you like. As it is, you're in left field.

The "Someone" who got it for 4.52% was the dealer, who low-balled an individual who wanted to unload it. The 2.795% is the return if the bond is called in 4 months. The short period to the optional call is what magnifies the yield with simply a 0.5 difference ($25) in price.

You couldn't get the 4.52% yield.

You may want to consider if investing in individual municipal bonds is appropriate for you.

 

[Retireby45ish]

LOL - do we need to go over the basics here, regarding yield to maturity and yield to call, because I really don't want to.

Please make sure you understand what the yields represent.

When you understand what you're looking at, then we can discuss further if you like. As it is, you're in left field.

The "Someone" who got it for 4.52% was the dealer, who low-balled an individual who wanted to unload it. The 2.795% is the return if the bond is called in 4 months. The short period to the optional call is what magnifies the yield with simply a 0.5 difference ($25) in price.

You couldn't get the 4.52% yield.

You may want to consider if investing in individual municipal bonds is appropriate for you.

No need to go over the basics, thanks.

I understand exactly what’s happening.

Furthermore, Asking this question on these boards is doing exactly what you suggest: “consider if investing in individual muni bonds is appropriate for you”.

If you read my initial question, it boils down to “if I throw a bid equivalent to 4.52% (in this case) into the market will I actually get filled instead of the dealer when someone else needs to unload this?” Or will the dealer just bid something like 4.4% and step in front of me.

Using prices (which are easier to think about) basically the dealer paid 100.27 and then you paid 100.8. My question is, if I bid 100.27 or 100.30 (something low) and left it out there all day will the cusfomer sell to me or will the dealer just bid him 100.31 and cut me out?

 

[jazz4cash]

Ok, I thought you were asking if individuals were ever able to buy below the ask in your OP. Some responded no, but several responded yes, including me. You seemed to shift away from your original question by saying the successful bid below ask was not as good as the price paid by a dealer/broker. When I placed my successful bid, I set it between the dealer price and the ask. I think the answer to your question in post 14 is "maybe" or "sometimes, but you won't know unless you give it a shot.

Also, I wonder how these issues compare between corporate and munis.

 

[njhowie]

Using prices (which are easier to think about) basically the dealer paid 100.27 and then you paid 100.8. My question is, if I bid 100.27 or 100.30 (something low) and left it out there all day will the cusfomer sell to me or will the dealer just bid him 100.31 and cut me out?

"...it is also very dependent on the bond, the prior sale price, along with current market condition."

and 99% of the time, the ask there is a dealer - the same dealer who made that last purchase, not a "customer". They buy, then turn around, mark it up, and immediately look to sell. If you enter a low bid and left it out there all day, the likelihood is that it would just sit there all day, nobody would step in front of it, and you would not get filled. If you do not give the dealer a reasonable profit on his purchase, you will not get the bonds. Now, this assumes that your broker allows you to set a bid on your muni purchases, Etrade and Merrill Edge do not allow you to enter a purchase price, you either take the ask, or you cannot purchase. Fidelity allows setting a bid (with certain limitations) on muni purchases.

The muni market operates differently from the corporate market. It is clear that you are unfamiliar with it. You may want to take advantage of some of the free online presentations and resources available from Fidelity and others which can help you better understand how it operates before getting involved.