Tips On Smart Execution Of Bond Trades From The Corporate Bond Investor
Bonds, Portfolio Strategy, Banks, risk management
Seeking Alpha Analyst Since 2009
Donald R. van Deventer is a Managing Director in the Center for Applied Quantitative Finance at SAS Institute, Inc. Prior to the acquisition of Kamakura Corporation by SAS on June 24, 2022, Dr. van Deventer was the Chairman and Chief Executive Officer of Kamakura Corporation. He founded the Kamakura Corporation in April, 1990. The second edition of his book, Advanced Financial Risk Management (with Kenji Imai and Mark Mesler) was published in 2013. Dr. van Deventer was senior vice president in the investment banking department of Lehman Brothers (then Shearson Lehman Hutton) from 1987 to 1990. During that time, he was responsible for 27 major client relationships including Sony, Canon, Fujitsu, NTT, Tokyo Electric Power Co., and most of Japan's leading banks. From 1982 to 1987, Dr. van Deventer was the treasurer for First Interstate Bancorp in Los Angeles. In this capacity he was responsible for all bond financing requirements, the company’s commercial paper program, and a multi-billion dollar derivatives hedging program for the company. Dr. van Deventer was a Vice President in the risk management department of Security Pacific National Bank from 1977 to 1982. Dr. van Deventer holds a Ph.D. in Business Economics, a joint degree of the Harvard University Department of Economics and the Harvard Graduate School of Business Administration. He was appointed to the Harvard University Graduate School Alumni Association Council in 1999 and served through 2021. Dr. van Deventer was Chairman of the Council for four years from 2012 to 2016. From 2005 through 2009, he served as one of two appointed directors of the Harvard Alumni Association representing the Graduate School of Arts and Sciences. Dr. van Deventer also holds a degree in mathematics and economics from Occidental College, where he graduated second in his class, summa cum laude, and Phi Beta Kappa. Dr. van Deventer speaks Japanese and English.
- Kamakura's KRIS default probability service and Kamakura Risk Manager risk management system are used by institutions with more than $28 trillion in assets or assets under management.
- Since 2015, Kamakura's Founder Don van Deventer has offered The Corporate Bond Investor on SeekingAlpha.
- The Corporate Bond Investor helps analytical individual investors better match their cash needs and minimize taxes and expenses in their fixed income portfolio.
- In this post, we summarize key bond trading tips from long-time subscribers to The Corporate Bond Investor.
A Consensus on “Best” Bond Trade Execution
The long-time subscribers to The Corporate Bond Investor represent some of the smartest bond buyers on the planet. They recognize that great bond selection can be offset (or worse) by bad execution in buying the bonds. Here are a few tips from other subscribers to The Corporate Bond Investor on how to execute trades efficiently. These suggestions recognize that Wall Street takes some of your money on every trade, so the key is to minimize the need to trade:
1. Never place a telephone order to buy a bond. Every time a live human is involved, you pay more and get less.
2. Take what the market gives you. If the maximum offered amount on the bond is $20,000, don’t try to buy more than that. Just wait a day or two or buy another bond.
3. Don’t trade if the bid-offered spread is more than $0.75 on a $100 par value bond. There are plenty of bonds with spreads at that level or less. Buy them instead. Try for a spread in the range of $0.50 or less.
4. Commissions are important. Make sure you are not being overcharged.
5. Don't sell unless default risk has gotten too high for your risk tolerance. Every trade costs you money, but holding to maturity does not. Subscribers to The Corporate Bond Investor can add an individual investor subscription to the Kamakura’s award-winning KRIS default probability service. Many of the world’s largest institutional investors use KRIS to structure both their fixed income and equity portfolios.
Analyst's Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
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