Execution costs and recommendations in bond trading for the private investor

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Virtually all private investors who trade bonds trade with a private bank. Just to be clear, a private bank is a customer of the bond market and not a primary participant. Private banking bond execution desks reach out to the investment grade or high yield desks in the Investment Banks which could be within the same bank or from other banks.

How some bond executions work

Some private banks like to cross the Bond trades internally. They make more money this way. So if one client wants to sell Bond A, they wait for another client to sell Bond A. The two trades are crossed midmarket price, but they actually charge bid-offer and then a further brokerage fee to each client. Sometimes the bank will even wait for the spread to be wide enough before they execute the trade. This is very unethical but not illegal. Bond trading is an over the counter market, and price discovery is not transparent.

Checking Bond prices

How do you check Bond prices? Bond price runs. 2) Bloomberg and 3) Cbonds.
Bloomberg and Cbonds require subscriptions. But there are free bloomberg machines around, e.g. if you are a Singapore private investor go to the National Library. If this is a USD bond, TRACE ((Trade Reporting and Compliance Engine)) will record historical traded prices. Using TRACE is a very good way of getting a feel of prices.Be aware that Bloomberg prices may be stale and not reflective of current market trading prices.Note that if you do have the luxury of checking, please ask two banks for pricing.

Timing of trading

Be aware of what time you are trading the bond and what time zone it trades it. Does the bond trade in Asian timezone or when London opens ?Also be aware of whether the day you choose to trade is a risk-on day or a risk-off day. Generally look at equity market performances to decide. Also be aware of big impending market event days like FOMC or Singapore NMC days.

Commission costs

This is a very important point. Firstly, it is important to know that the institutional market does not pay additional brokerage costs. They merely pay the bid offer. Secondly, we feel that investors should not pay more than 25 bps for a trade. We think 15bps is fine, and 10bps is very good.

Switching costs

Often, investors are asked to switch from one bond to another. This is often done in the institutional world, but we advise caution for private investors. Institutional investors can switch at midmarket or at most for one leg of the trade, ie either the buy or the sell. For private investors, you cross the bid-offer, and further pay commissions. What is particularly abhorrent is when the switch is in the same industry; e.g., two chinese property bonds. When the bonds are in the same space, it is very difficult to justify the relative value (from a risk reward in credit yield improvement), in doing such a switch. It is even arguable that bonds exhibiting the same macro characteristics: eg China Railway Industry and Cement may not justify a switch.


Leverage is a good servant but a bad master. Generally you should be aware that your loan to value can evaporate on any given Bond at the discretion of your Private Bank. So to avoid margin calls, do keep a clear buffer. On the aspect of fees, we think a spread of 75-100 bps is the most you should pay, and 50 is not an unachievable target.

Custody fees

Custody fees can vary significantly between customers. Those who trade/churn bonds more frequently may pay less fixed fees than another.


Why is your banker recommending this bond to you? Is the banker recommending because his investment bank bond trader is stuck with bond? Alternatively is this a bond the advisory desk recommended? And why are they recommending this Bond? Do understand the compliance aspects of each particular Bank. What can or cannot he banker recommend to you. Please calibrate your banker’s agressiveness and level of experience.

Also, sometimes when bankers recommend new bond issues sometimes they do so because of PB rebates, so be very aware of incentives. Finally, while we are not suggesting an adversarial approach to your private bank, do be mindful of trading costs and practices and this will be beneficial to your returns.