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By better understanding bonds, you can more confidently use them to strengthen your portfolio.
Copyright 1998-2017 FMR LLC. All Rights Reserved. 3
Resources to help inform and assist you in managing your assets
Education on securities
Insights for helping you make more prudent and informed decisions
Develop an Ongoing Strategy with Fidelity
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Common Questions
How many of you currently have bonds in your portfolio?
1 Ever wonder why it’s harder to get a bond quote than a stock quote?
2 How many of you have a grasp on what you’re being charged per bond trade?
3
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Today’s Agenda
Assessing Pricing for Individual Bonds
Comprehending the Bond Market
Understanding Trading Costs
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Understanding the Bond Market
Volume
Makeup
Size
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The Makeup of the Bond Market Varies from the Stock Market
STOCK MARKET BOND MARKET
Makeup Equity shares of publicly owned companies
Debt securities issued by corporations, governments, government
agencies, municipalities
Size Limited to size of shares offered by companies
Relatively small and large debt instruments
Trading floors Centralized (Ex. NYSE or NASDAQ)
Fragmented, bonds are traded
“over the counter.”
Timing of determined
price
Market price negotiated prior to trade
Market price negotiated at the point of trade
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Size
1.Bonds—SIFMA, Q1 2017, Equity NYSE, S&P 500, Dow, NASDAQ. 2. Bonds—SIFMA, Q1 2017, Equity AMEX/ARCA, NYSE, NASDAQ, BATS, DirectEdge. 3. Bonds-FINRA May 2017, Equity-World Federation of Exchanges Dec 2016 4.Bloomberg—Recent 10-K filing.
In general, the bond market is volatile, bond prices rise when interest rates fall and vice versa. This effect is usually pronounced for long-term securities.
Any fixed income security sold or redeemed prior to maturity may be subject to a substantial gain or loss.
CHARACTERISTICS BOND STOCK
Market Size1 $38 Trillion $29 Trillion
Daily Trading Volumes2 $809 Billion $270 Billion
Number of Securities3 1,200,000 5,200
Ford (example) Outstanding4 $65 Billion $45 Billion
Ford (example) Number of Issues4 277 1
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Volume: US Bond Markets
Source: Fidelity, SIFMA, 2017
DAILY TRADING VOLUME ($BN) AND CUSIPS OUTSTANDING
$517
$206
$30 $10 $5 1K 54K 89K
1.0M
13K 0K 200K 400K 600K 800K 1.0M 1.2M
$0
$200
$400
$600
$800
$1,000
Treasuries MBS Corporate Municipal Agency
Daily Trading Volume ($BN) # of Cusips
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The bond market can be difficult to navigate because of its fragmented nature, its size, and its inconsistent trading.
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Review materials in your kit
Take a look at the Viewpoints article titled:
Is it time to look at CDs?
Learn More
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Assessing Pricing for Individual Bonds
Live Pricing
Valuation Pricing
Historical Pricing
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Valuation Pricing: Monthly Statement Bond Pricing Valuation
For illustrative purposes only Source: Fidelity.com Screen-print taken on 12/22/2016
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Valuation Pricing: Nightly Valuation
For illustrative purposes only Source: Fidelity.com Screen-print taken on 12/22/2016
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Valuation Pricing: Bond Details
For illustrative purposes only Source: Fidelity.com Screen-print taken on 12/22/2016
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Valuation Pricing: Fixed Income Analytics
For illustrative purposes only Source: Fidelity.com
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Historical Pricing: Trading Liquidity
For illustrative purposes only Source: Fidelity.com Screen-print taken on 12/22/2016
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~40K Unique Bonds Offered
~60K Total Offerings
Live Pricing: Fidelity Bond Aggregation
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Live Pricing: Live Listing of Bonds Available
For illustrative purposes only Source: Fidelity.com
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Live Pricing: Treasuries and Corporate Live Bid and Offer Prices
For illustrative purposes only Source: Fidelity.com
Bid Price: 99.421 Ask Price: 99.469
Yield Spread: 0.005%
Bid Price: 105.904 Ask Price: 105.999
Yield Spread: 0.011%
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Live Pricing: Municipal Bond Offerings
For illustrative purposes only Source: Fidelity.com
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Live Pricing: Depth of Book
For illustrative purposes only Source: Fidelity.com
11 dealers offering Different quantities and prices 6 dealers bidding
Different quantities and prices
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Historical Pricing: Depth of Book and Recent Trades for Corporate Bonds
For illustrative purposes only Source: Fidelity.com
Recent Trades Investor Bought earlier at 112.52
Investor Sold earlier at 112.20
Best Offer: 112.388 Best Bid: 111.902
Yield Spread: 0.108
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Historical Pricing: Depth of Book and Recent Trades for Municipal Bonds
For illustrative purposes only Source: Fidelity.com
Best Offer: 124.083 No Bids
Trades often months apart Pricing increased over time, in line with general Muni market
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Live Pricing: The Yield Table
For illustrative purposes only Source: Fidelity.com
Fidelity.com > Research > Fixed Income Bonds & CDs
Quick and easy scan of 120 comparative yield data-points
Derived every 15 minutes from live bond inventory
Immediate, one-click, access to search results for that category
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Live Pricing: Using the Fidelity.Com Bond Yield Table
For illustrative purposes only Source: Fidelity.com
Click on a yield to see offerings
View by Highest or Median yields
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Live Pricing: The Yield Curve
For illustrative purposes only Source: Fidelity.com
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Live Pricing: Lower-Yielding Bonds Generally Indicate Lower Risk
For illustrative purposes only Source: Fidelity.com
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Live Pricing: Higher-Yielding Bonds Invariably Mean Higher Risk
For illustrative purposes only Source: Fidelity.com
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Review materials in your kit
Learn More Take a look at the Viewpoints article titled:
Bonds 2017: A New Dynamic
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Understanding Trading Costs
Impact
Transparency
Fee Comparison
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Cost Transparency
A Fidelity Process: “Transparent Pricing”
OFFERINGS SEEN BY TRADERS
PRICES SEEN BY CUSTOMERS IN
OFFERINGS
PRICES SEEN BY CUSTOMERS IN TRADE TICKET
B Markup Broker Process: “Undisclosed Pricing”
Inventory (and prices) from dealers
Inventory (and prices) from dealers
Disclosed Concession ($1/Bond)
Inventory (and prices) from dealers
$1
Bond
1 2 3
Inventory (and prices) from dealers
Inventory (and prices) from dealers
Inventory (and prices) from dealers
Undisclosed Concession ($?/Bond)
Undisclosed Concession ($?/Bond)
$?
Bond
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Fee Comparisons
Price Quantity Yield Date/Time Buy/Sell
101.963 100 3.195 06/08/2015 04:49:44 Customer Buy
101.863 100 3.208 06/08/2015 04:49:44 Dealer to Dealer
104.217 75 2.909 06/04/2015 11:11:59 Customer Buy
102.271 75 3.155 06/04/2015 11:11:53 Dealer to Dealer
For illustrative purposes only
Source: Fidelity.com
Fidelity’s $1 per bond concession (101.963 – 101.863) Another broker’s $19.46 per bond markup (104.217 – 102.271)
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Impact
Source: Fidelity.com
Compare Fidelity’s $1 per bond with markup competitors
fidelity.com/go/bond
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Learn More Review materials
Take a look at our online Viewpoints resources:
What the Fed’s Move May Mean
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In Review
Assessing Pricing for Individual Bonds
Comprehending the Bond Market
Understanding Trading Costs
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Next Steps Review materials in your kit
Review the Viewpoints articles:
• Is it time to look at CDs?
• Bonds 2017: A New Dynamic
• What the Fed’s Move May Mean
Attend additional seminars: • Bond Investing Beyond Yield—
A Deeper Dive • Demystifying Bond Selection for
Your Portfolio
• Using Fidelity’s Fixed Income & Bond Investing Tools
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Where to start: Fidelity.com > Research > Fixed Income, Bonds & CDs
fixedincome.fidelity.com/ftgw/fi/filanding
For illustrative purposes only
Source: Fidelity.com
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More on the Corporate Insight Bond Pricing Study fidelity.com/go/bond
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How Fidelity Can Help
Further understand your current bond holdings
Explore how you may improve your portfolio with bonds
See if you’re currently paying markups on bond transactions
Meet with a Fidelity investment professional
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Why Fidelity
Expert Insights and Investing Tools
Trading
Security and Privacy
Straightforward Pricing
WE BELIEVE IN MAKING THE COMPLEX, SIMPLER
Planning and Advice
Advice refers to investment management services offered within our professionally managed accounts
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By better understanding bonds, you can more confidently use them to strengthen your portfolio.
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1. Fidelity commissioned Corporate Insight to study bond pricing, available online, for self-directed retail investors from five brokers that offer corporate and municipal bonds. The study compared online bond prices for over 20,000 municipal and corporate inventory matches between September 2nd and October 6th, 2015. It compared municipal and corporate inventories offered online. The study found on average that four competitors that bundled their markups or fees into their online bond prices were asking an average of $13.65 more per bond. Corporate Insight determined the average cost differential by calculating the difference between the costs of matching corporate and municipal bond inventory at Fidelity vs. these markup-based firms in the study, then averaging the differences across all of the competitor firms. For the table, the example competitor trade costs range of $240 - $510 is based on an average size order of $22,000 face or par value bonds and average cost differential between Fidelity and the four selected competitors displayed in the table. Year to date, through September 2015, Fidelity's retail brokerage account holders who purchased individual municipal or corporate bonds, purchased an average of 22 bonds per transaction.
Minimum concessions of $19.95 apply if traded with a Fidelity representative. For U.S. Treasury purchases traded with a Fidelity representative, a flat charge of $19.95 per trade applies. A $250 maximum applies to all trades, reduced to a $50 maximum for bonds maturing in one year or less. Fixed income trading requires a Fidelity brokerage account with a minimum opening balance of $2,500. Rates are for U.S. dollar–denominated bonds; additional fees and minimums apply for non-dollar bond trades. Other conditions may apply; see Fidelity.com/commissions for details. Please note that concessions may affect the total cost of the transaction and the total, or "effective," yield of your investment. The offering broker, which may be our affiliate National Financial Services LLC, may separately mark up or mark down the price of the security and may realize a trading profit or loss on the transaction.
References to individual securities are for illustrative purposes only, and should not be construed as investment advice.
In general, the bond market is volatile, and fixed income securities carry interest rate risk. (As interest rates rise, bond prices usually fall, and vice versa. This effect is usually more pronounced for longer-term securities). Fixed income securities also carry inflation risk, liquidity risk, call risk and credit and default risks for both issuers and counterparties. Any fixed income security sold or redeemed prior to maturity may be subject to loss.
Disclosures
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Interest income earned from tax-exempt municipal securities generally is exempt from federal income tax, and may also be exempt from state and local income taxes if the investor is a resident in the state of issuance. A portion of the income received may be subject to federal and state income taxes, including the federal alternative minimum tax. In addition, investors may be subject to tax on amounts recognized in connection with the sale of municipal bonds, including capital gains and “market discount” taxed at ordinary income rates. “Market discount” arises when a bond is purchased on the secondary market for a price that is less than its stated redemption price by more than a statutory amount. Before making any investment, investors should review the official statement for the relevant offering for additional tax and other considerations.
The tax information contained herein is general in nature, is provided for informational purposes only, and should not be construed as legal or tax advice. Fidelity does not provide legal or tax advice. Fidelity cannot guarantee that such information is accurate, complete, or timely. Laws of a particular state or laws that may be applicable to a particular situation may have an impact on the applicability, accuracy, or completeness of such information. Always consult an attorney or tax professional regarding your specific legal or tax situation.
Past performance is no guarantee of future results.
Fidelity Brokerage Services LLC, Member NYSE, SIPC, 900 Salem Street, Smithfield, RI 02917 765139.3.1 1.9872603.104
Disclosures
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