Buying and selling fixed income securities such as permanent interest bearing shares (PIBS), ECNs, subordinated bonds and preference shares can be somewhat more complicated to trading ordinary shares.
One key difference is that some fixed income securities are not traded on the London Stock Exchange but rather on specialist interbank bond markets such as Clearstream and Euroclear. To make matters even more complex some securities are traded on both the London Stock Exchange and the interbank market with the prices available being different between the various exchanges. This is illustrated in the following table which compares the London Stock Exchange quoted prices of several fixed income securities with bond market price indications on the same date:
Prices in the above table are indicative and for illustrative purposes only based on quotes obtained on 6 April 2010.
Lloyds Banking Group Enhanced Capital Notes (ECN's) are a particular example of a type of security widely held by retail investors and traded on both the London Stock Exchange and specialist bond exchanges. The table below compares quotes obtained on the same date for a number of the popular ECN's:
Prices in the above table are indicative and for illustrative purposes only based on quotes obtained on 12 November 2010.
The above tables illustrate that significantly narrower spreads and price improvement can be obtained by executing deals in fixed income securities through interbank bond markets rather than the London Stock Exchange. Most discount execution only brokers will tend to deal mainly through the London Stock Exchange and have limited access to the bond market exchanges such as Clearstream and Euroclear. In many cases it is better to deal through a specialist fixed income broker with direct access to and expertise in these markets. Another price advantage I have found from dealing through a specialist full service broker is that they sometimes (particularly in periods of market turbulence) have access to lines of stock at prices well below the quoted market bid price. For example I have managed to buy Bradford & Bingley bonds at under 4p when the London Stock Exchange quoted market spread was 6p-9p and Nationwide PIBS at 61p when the quoted market spread was 75p-80p. While the commission will be higher the price improvement and service offered by specialist full service brokers will often make this by far the best option.
Another factor I have discovered from buying on the interbank market is the timing of purchases. This is the market where institutions (for example fixed income and pension funds) will buy and sell. I have found that towards the end of the calendar year there can be some very good deals available, especially in distressed issues, due to institutions trying to sell down certain holdings before the year end.
In my experience Collins Stewart Wealth Management offers an excellent service to fixed income investors. Not only are they specialists in fixed income securities but also act as market makers in many issues such as PIBS and ECNs. This means that they often have very good offers available on fixed income securities such as PIBS, bonds, preference shares and ECNs. If you are interested in finding out more please contact Asim Bajwa, who I can personally recommend, using the details below. When doing so please mention that you were referred by Mark Taber of Fixed Income Investments because there is an arrangement whereby new business generated will help to provide vital revenue to fund the maintenance and future development of this free site and my lobbying on behalf of retail fixed income investors.
Contact: Asim Bajwa - Collins Stewart Wealth Management
Telephone: 020 7523 4554
Email: ABajwa@collinsstewart.com
 Alternatively you can contact me by completing the Contact Form on this website. |
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Buying Fixed Income Securities |