In article <qI-dnc8T75iqXyjUnZ2dnUVZ_sbinZ2d[at]giganews.com> ,
"W" <persistentone[at]spamarrest.com> wrote:

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The way it works for bonds which are not exchange traded is that there
are bond dealers who buy bonds when offered for sale. The offering
price is what the dealer thinks it is worth (maturity date, size of lot,
rating, coupon and a fudge factor) less a discount. The dealer then
offers the bonds for sale at what he thinks it is worth at the time of
sale. Usually there is a fixed fee for the transaction. That is why the
holder of a few bonds gets screwed if he tries to sell before maturity.

On the other hand if a dealer bought a bunch of say GM bonds before the
really bad news came out he would take a big loss

Assuming I have a way to call my broker, tell him the name of the dealer to
buy from (based on knowledge I have about which dealers have offers at
different prices), and the limit price for the order, I should not have to
contend with the spread.

I realize the bond market has poor liquidity and very bad transparency. I
have some limited data on offers from each bond dealer. I want to find a
bond broker that will only charge me a flat rate commission and not markup
the bond price, as long as I do the legwork to find the bond desk to buy
from. There are a few bond dealers who claim to do that. Reality might
be different from advertising.

How does the situation improve for a round lot? I would have assumed most
retail buyers are subject to the bid/ask spread in any case?

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W


"catalpa" <catalpa[at]entertab.org> wrote in message
news:xc6tl.2102$gm6.1361[at]nwrddc02.gnilink.net...
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"W" <persistentone[at]spamarrest.com> wrote in message
news:LMOdnS647fy9lC7UnZ2dnUVZ_tmWnZ2d[at]giganews.com...
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Not crazy at all, as they are all odd lot trades. Odd lots have wide
spreads. The dealer buys on the bid and sells on the offer. The retail
investor sells on the bid and buys on the offer, so zero such opportunities.

You must become a bond dealer if you want to profit from the odd lot spread.

Unless you are doing round lots and have the proper expertise it is best to
stay away from the market for individual bonds.

Any bond ticker I have looked at - such as the ones showing trades on
investinginbonds.com - show really crazy trades for almost any bond. A
typical pattern for one bond is as shows here:

02/27/2009 10:18:00 100.353 2.054 5K
02/26/2009 11:15:42 100.345 2.002 15K
02/26/2009 11:14:00 100.444 0.755 15K
02/24/2009 15:03:50 97.000 38.404 15K
02/24/2009 15:03:50 98.000 27.501 15K
02/24/2009 15:00:31 99.011 16.696 15K

Because the above bond is close to maturity, small swings down in the price
have a big effect on the yield. Even accounting for the accrued interest
on the bond, buying this bond at 97 or 98 when the principal repayment is on
4/1/2009 gives a great return. If you look at the last few months of
trading activity on this bond, only three times did it trade at $98.5 or
below, from hundreds of trades. So these trades at $97 and $98 are not
normal.

Assuming you had a view of bond offers from many different bond desks -
which I know is hard for a retail investor to get - would a retail investor
have any shot at all of capturing these anomalous pricing events? My
cynical side is telling me that these strange price glitches are not honest
trades at all. I am figuring that one bond desk is doing some special
favor for another bond desk, and the trade was never really available to
anyone outside that private collaboration.

How often would a vigilent retail investor who had a view of many bond desks
get such opportunities?

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W