How to Sell Bonds

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