| If you want to make good money with banks, or | | | | assets) will value good planning and |
| any institution, Government and agency bonds | | | | thoughtful recommendations over dealing with |
| are where it is at. Simply because all | | | | 10 brokers all day. The larger institutions |
| Government bonds and agencies are AAA rated, | | | | are more complicated, and require more price |
| and banks can buy millions of dollars of any | | | | awareness. They think they have the ideas |
| bond without incurring any credit risk.All | | | | covered and you may have to just be an order |
| banks own bonds of some sort, and they are | | | | taker with them. How To Sell Mortgage Backed |
| buying them from brokers. Our primary bonds | | | | Securities or CMO's Mortgage backed |
| are: | | | | securities offer the best alternative to |
| | | | decreased loan demand. Pass throughs, CMO's |
| U.S. Treasury obligations (T-bills, | | | | and adjustable rate MBS's are paid to the |
| T-notes, T-bonds) | | | | bank just like a loan that the banks has made |
| | | | for a mortgage. If a person takes out a |
| Government Agency Debt (GNMA) | | | | $250,000 mortgage, the customer is paying |
| | | | back the bank monthly with principle and |
| Private Agency Debt (FNMA, FHLMC, FHLB and | | | | interest. As you know, if you own a home, |
| others) | | | | your initial payments are mostly INTEREST in |
| | | | the early years. A mortgage backed security, |
| Mortgage Backed Securities (Pass throughs , | | | | if it is a new issue will operate the same |
| CMO's, ARM's) | | | | way.Length of the outstanding mortgages, or |
| | | | current face of the mortgages are a factor. |
| Municipal Bonds | | | | "Seasoned pools", as they are called, are |
| | | | mortgage pools that have had several years of |
| Investment Grade Corporate Bonds | | | | payment on them. They have more predictable |
| | | | payments and duration. They will normally pay |
| | | | better because of that. Seasoned pools are |
| | | | usually what banks are looking for. They are |
| The institutions that have strict policy | | | | generally interested in better cash flow and |
| guidelines on the bonds that they can buy are | | | | predictable cash flow.The compensation or |
| Banks, Credit Unions and Municipalities.The | | | | mark up potential is good in mortgage backed |
| spreads on Treasuries make them difficult to | | | | bonds. They are priced above treasuries |
| sell or "mark up" more than a few "ticks" to | | | | because, although they are AAA rated, they |
| most sophisticated banks and institutions. A | | | | are not absolute in their pay off and the |
| tick is 1 point in price. Government bonds | | | | payments fluctuate. Since they are usually |
| are quoted in 32nds.An example of a treasury | | | | 15-30 years in duration, they allow for price |
| bond would be: Bid 101-16 Ask: 101-24. If | | | | mark up. Where treasuries and straight agency |
| your client wanted to buy $10,000 of this | | | | debt allow for a few ticks to a .25, MBS's |
| treasury bond, you would see the price to you | | | | can create spreads between buying and selling |
| at 101-24 (24/32). 24/32 = .75. So the price | | | | them up to a ½ or ¾ of point. This can |
| is really 101.75 or $10,175. Each point | | | | translate to a $5,000 commission on a $1 |
| represents $10 for every $1000 par bond. For | | | | million sale. Remember, a million dollars in |
| $10,000, each point is worth $100. All bonds | | | | one bond is not unusual for most |
| trade at a minimum of 1000. Institutions | | | | institutions, and for banks over $500 million |
| normally buy $250,000 up to tens of millions | | | | in assets, it's normal.Other Types Of |
| per trade. So, our example of a $10,000 trade | | | | Institutions To Sell Bonds to:There are other |
| really isn't realistic and would not be worth | | | | institutions that buy bonds of course. |
| your time. A "tick" by the way, is if the | | | | However, other institutions for the most part |
| price went up to 101-25.Trading for a few | | | | can buy other competitive investments, and |
| "ticks" on $100,000 would make you very | | | | deal with other brokers in those areas. Also, |
| little. If you factor in ticket charges, you | | | | many of these others hand over portions of |
| might make $100 on the trade. You only | | | | their major assets to professional money |
| present treasuries if it's non competitive, | | | | managers. Banks, CU's and municipalities only |
| or if the client is investing at least | | | | buy fixed income, so their entire portfolio |
| $1,000,000, otherwise it won't make you much. | | | | is available to you. They also will very |
| If your client deals with 3 other brokers on | | | | rarely turn their entire portfolio over to a |
| treasuries, you will all be fighting for very | | | | 3rd party. That is not the case with some of |
| little money. It's very easy to get a quick | | | | these others. They would include:Insurance |
| quote on treasuries. Every major dealer owns | | | | Companies |
| them, and they can be purchased quickly. You | | | | |
| or your trader will contact a major brokerage | | | | Foundations |
| firm (Merrill Lynch, UBS etc.) and buy them. | | | | |
| Not much money yes, still, it is assets you | | | | Universities |
| are controlling, and it could be used as | | | | |
| available money to swap out of into a better | | | | Hospitals |
| investment for the client.Treasuries are very | | | | |
| safe of course, that's why they are bought. | | | | Pension Funds |
| Only buying treasuries will diminish the rate | | | | |
| of return of the entire portfolio, if that is | | | | Cemeteries (Yes, even them)Ultimately, these |
| their only or main investment vehicle. | | | | accounts can buy almost any type of bond. |
| Treasuries offer flexibility though. The | | | | Corporate bonds can be offered as well. |
| market values on them will normally hold up | | | | Still, your opportunities are spotty in with |
| well over time. They are very liquid and can | | | | these accounts. Information or lists of these |
| be traded instantly. You should sell them | | | | types of accounts can be obtained through |
| only as "time bucket" or maturity gap | | | | directories or other sources.Focus on the |
| placing.If you see the bank has nothing | | | | Financial and public institutions. They will |
| maturing in the first half of a year for | | | | be a much higher percentage play for you to |
| instance, you can recommend treasuries there | | | | sell bonds.Good Luck!Nick Hunter is the |
| too. Remember, institutions are looking for | | | | President of American Investment Training and |
| best price, but also good advice. The medium | | | | he writes for - a finance education and |
| sized banks ($50 million - $500 million | | | | career job site for brokers. |