Investors’ move to bonds made easier

Janet Babin Jun 12, 2007

Investors’ move to bonds made easier

Janet Babin Jun 12, 2007


Kai Ryssdal: As you might have gotten from Bob a minute ago, the bond market can be a tricky place. It’s just as volatile as stocks, and tougher to figure out sometimes. Like, why do bond prices fall when yields rise?

If you’re comfortable in that arena, and if you can answer a question like that, buying bonds might be for you. Regulators have tightened their disclosure rules and brokerages have been dropping their fees. Charles Schwab is the latest, as Marketplace’s Janet Babin reports from North Carolina Public Radio.

Janet Babin: Starting this summer, Charles Schwab will charge customers a dollar per online bond trade — on average, less than customers used to pay. The company will also start to break out prices, so investors know how much commission they’re paying.

The changes follow similar moves at other brokerages. Investment advisor Gary Shilling says Schwab and others want to corner the growing bond market.

Gary Shilling:I think they sense that people are a little nervous with stocks, they might be more interested in bonds, therefore there may be potentially a greater market than there was before.

While some people think bonds are complicated, Shilling says they’re a lot more straightforward than stocks or emerging markets.

But until a few years ago, bond trade prices weren’t even reported to the public. So paying the right price for a bond, if you weren’t a broker, was hard to do.

USC professor Larry Hughes says brokerage price changes wouldn’t matter so much if bond prices were still opaque.

Larry Hughes: What came first was the technologies that allow direct access through the Internet. And what also came first was the regulations that now require that these prices be reported with a 15 minute lag.

Now, investors can go online to see how much bonds are fetching.

Marilyn Cohen: But you know what? People don’t do it.

That’s Marilyn Cohen with Envision Capital Management.

Cohen: People will cut out coupons and drive all over town to save $50 on a color TV, but they won’t go online to check that bid and ask spread.

Cohen says any bond investor should do that online price check or they could get ripped off.

I’m Janet Babin for Marketplace.

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