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Just how much does it really cost to sell an individual municipal bond? I hope you’re sitting down, because it turns out the total costs can be as much as one to two years’ worth of the bond’s interest yield. Most bond desks claim otherwise, but here are some examples as well as some lessons you might want to apply.
A few months ago, I wrote about Municipal Bonds and the industry’s dirty little secret, calling into question the huge total costs in trading individual bonds. As a result of this blog, I was contacted by Robert Kane, CEO of an amazing new web site called Bondview.com. With this free website, investors can look at the individual trading history of municipal bonds. This is the first site I’ve found that gives so much transparency to the over-the-counter bond trading business. It appears I may have underestimated the trading costs in my original article.
A shocking example
Not too long ago, an investor came to me having just sold five municipal bonds, totaling $435,000, on Fidelity’s web site. Because muni bonds are so thinly traded, I was able to use Bondview.com to track what happened to each bond. Here’s a typical example:
Income Security Recommendation December 2011 Issue.
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