Where can I buy corporate bonds online?

Corporate bond investors can buy corporate bonds online from a number of online brokers, including Fidelity Investments and E*TRADE Financial.  While BondSavvy is not affiliated with either company, our founder Steve Shaw has led investor education webinars for both companies, including: 
  • August 6, 2019: Steve led a bond investing webinar on Fidelity titled "Rethinking Bond Investing," which you can view here
  • May 17, 2018: Steve led a bond investing webinar for Fidelity customers titled "The Case for Active Bond Investing"
  • November 6, 2018: Steve presented 'Active Corporate Bond Investing' to E*TRADE customers. Click here to watch a recording of this bond investing webcast.
There are many advantages to investing in corporate bonds online, including:

1) See the largest amount of corporate bond inventory
2) Pay the lowest fees
3) Enjoy fast and efficient trade execution

We will discuss each of these points in turn.

See the largest amount of corporate bond inventory
Online brokerages create a competitive market for your corporate bond investments by aggregating bid-offer quotes from over 100 dealers.  Typically, for each corporate bond available on an online brokerage, there will be five to ten dealers providing live-and-executable bid-offer quotes.  The below example shows a depth of book for the Verizon 3.85% 11/1/42 bond (CUSIP 92343VBG8) available on Fidelity.com.  

* Depth of book show on Fidelity.com at 1:55pm EDT on March 13, 2019.

In this case, six dealers provided live bid quotes and eight dealers provided offer quotes.  This is typical for both investment-grade corporate bonds and high-yield corporate bonds.  This is a far cry from the way the bond market worked decades ago, as, corporate bonds today trade in a competitive marketplace with typically reasonably narrow bid-offer spreads.

In the Verizon '42 case, the bond was quoted with a bid-offer spread of 0.65 points, on a dollar-price basis, and 0.047 percentage points (or 4.7 basis points) on a yield-to-maturity basis.  Bid-offer spreads for corporate bond investments can vary based on the maturity of the bond, how actively the bond trades, and the number of dealers providing bond price bid-offer quotes.  Bonds with a long time to maturity, such as the Verizon '42 bond, will often have wider bid-offer spreads on a dollar-price basis.  The reason for this is bonds with a longer time to maturity are more sensitive to changes in interest rates since changes in rates will impact the bondholder for a longer period of time than they do for investors in shorter-term bonds.     

Do all brokerages show customers competitive quotes?
Most online brokerages differ from traditional brokerages, as traditional brokerages often do not enable customers to see all of the quotes provided by third-party dealers (aka "Street Inventory").  They, instead, often only show customers bonds their trading desks are quoting.  As a result, it is often the case these customers see less bond inventory at worse prices since they do not enjoy the benefit of competitive bond price quotes.

Pay the lowest bond trading fees
If a Fidelity customer was to purchase the above Verizon company bond at a price of 92.303, Fidelity would 'mark up' the bond by 0.1 points, which is equivalent to $1 per $1,000 face value of bonds.  Since bonds are quoted as a percentage of their face value, a bond price quote of 92.303 means the value of the bond is $923.03.  With the $1 mark-up, the customer would pay $924.03 for each bond plus interest that has accrued on the bond from the last coupon payment date.

These fees are in sharp contrast to fees charged by traditional brokerages, which often charge a two-point markup for each bond.  For example, that same bond quoted at 92.303 would be shown to a customer of a traditional brokerage at 94.303.  This fee is equivalent to $20 per bond, or 20x the amount charged on Fidelity.com and other online brokerages.  These fees add up, as an investor would pay $2,000 to purchase a $100,000 face value bond portfolio and then another $2,000 if the investor elected to sell bonds prior to maturity.  Depending on how long an investor owns a particular bond, these brokerage fees could exceed bond fund management fees for a similarly sized portfolio.       

Enjoy fast and efficient bond trade execution
BondSavvy founder Steve Shaw is the former head of Tradeweb direct and a senior executive of BondDesk Group, two companies that built the technology for retail brokerages to buy and sell bonds on behalf of their investor clients.  He saw firsthand the level of investment made to ensure fast and efficient bond trade execution.  Today, nearly all bond trades with a live quote are filled instantaneously, with order submission to trade execution typically taking less than one second.  Technology companies such as Tradeweb and ICE BondPoint and retail brokerages have invested heavily through the years to make bond investing more fair and efficient for individual investors.  We expect this investment and focus to continue and for individual investors to be the beneficiary of improvements made to US corporate bond market trading.       

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