Investing: Fidelity pulls back the curtain on bonds
Fidelity has simplified and disclosed its bond pricing. This is a really important development for investors, particularly people who are retired or close to retirement.
In a press release last month, Fidelity stated it will charge the following commissions: $1 per bond for Treasuries; $2 per bond for Government Agencies, Treasury Strips and Certificates of Deposit; $3 per bond for Municipals; $4 per bond for Corporates; and $5 per bond for Mortgage Backed Securities and others. The new pricing schedule applies to online, telephone and broker-assisted channels and with no other caveats for maturities and value of the bond.
What you see is what you’ll pay. For self-directed bond investors, Fidelity is offering a tremendous deal.
Think about this pricing in different terms. Say an investor purchases 10 municipal bonds, a small-lot, retail-sized trade. With little or no compunction, a full-service broker will put a full point (1% of par) into that trade. A longer maturity or lesser-credit bond will drive that cost closer to 1.5 or 2.0% of par. Fidelity is handing the investor the bond at .30% of par.
A home run for bond investors: Fidelity is disclosing its costs.
Unlike an equity trade confirmation, a bond trade confirmation does not disclose what the dealer is charging the investor. In their clubbish, over-the-counter world, bond dealers can trade in a manner called “riskless principal trading.