The municipal bond market is actually a combination of two closely related markets. The primary market is the new issue market, where bonds are purchased directly from the issuer. The secondary market includes bonds that may have been issued as recently as yesterday or as much as twenty or thirty years ago.
The Secondary market accounts for about 80% of the total municipal market. However, from an investor's point of view, the most important difference is that except for the occasional long-term bond, the primary market is invariably much higher priced than the secondary market. So it is in the secondary market where sophisticated, value conscious investors shop for bargains.
The secondary market is where a firm's municipal bond traders are important, because unlike most businesses where inventory is simply purchased from a manufacturer or distributor, bond traders must bid competitively for bonds in the open market. That is why prices on bonds will vary from firm to firm, and why it is the trading expertise coupled with transaction cost factors, that determine the prices of the bond offerings you will see from a firm.
As many investors already know, Stoever Glass & Co. has an industry-wide reputation for municipal bond offerings that are consistently priced better than similar items available in the general market. Although it is easier to say than to prove, it is nevertheless true and there are several good reasons for our pricing advantage. We thought you might like to hear about them.
I. We process and clear all of our bond transactions internally, which is more economically efficient than paying an outside clearing specialist to do it. Many firms no longer have the skilled personnel required to provide clearing services, so they pay other firms to process and clear transactions for them. That is perhaps a more convenient way to clear transactions, but it's not better for you. Firms that clear through other firms pay about fifty dollars per trade to process the buy and sell side of each bond transaction, and that additional expense is passed along to their clients in the form of higher prices (lower yields). Since we do all of our own clearing, we don't have an extra buy and sell expense, so for five to twenty-five bond trades, with five to ten year maturities, that usually means 20 to 30 basis points better yields for our clients. (With longer bonds and/or larger amounts the difference is less).
II. Our trading department is not set up as an independent profit center the way it is at other firms. Instead, our trading department is simply an integral part of out overall sales team. So unlike almost every other firm, and the large brokerage houses in particular, our trading department doesn't keep a percentage of the profit for itself on each and every trade. "Trading cuts", as these percentages are commonly called, are typically about 20% of the profit per trade. Obviously, those trading cuts are passed along to increase the price (lower the yield) to their clients. Our trading desk is not set up to take the traditional trading cuts, which is a big reason we can consistently offer bonds at better prices.
III. Our traders average twenty-five years of trading municipals, day in and day out, and through all kinds of markets. Every day we bid hundreds of different items from bond brokers. We bid many more than we can use, but we bid almost all of them below the general market price. The net result is that at the end of the day, we buy our fair share of bonds and almost always at better prices than what is available in the general market. This unique trading style is a very effective technique for buying bonds at good prices, but is requires very experienced traders to do it properly.
IV. In over thirty-five years of trading the municipals most suitable for individual investors, we have gained an industry-wide reputation as good bidders on a broad range of bonds in each and every state. We have gained that reputation in part, because we do not take the customary trading cut or use an outside firm to clear our trades, and therefore can execute trades more efficiently. So bond dealers as well as estates and trusts call us every day, from all over the country to ask us to bid for a wide variety of bonds.
That gives us greater exposure to the market, further increasing your chances for a good buy. (It is also significant to note that the discount brokers who do not carry a municipal inventory very often buy their municipals from our trading desk.)
V. All of our salespeople are trained at the trading desk for at least six months before they qualify to become a member of our sales team. Even more importantly, all of our salespeople see every purchase price right off the trading desk just as we bought it, and that keeps them continuously attuned to the true market prices. That's a significant difference, because since other firms take a trading cut, they show their bonds to their salespeople at a marked-up price to cover that extra expense. Then they give their salespeople an arbitrary sales credit to work from. As a result their salespeople see artificially created prices instead of the true market prices.
Ask sales representatives at other firms if they see every purchase price directly from their trading desk or if their inventory list shows a set price with a sales credit. If the answer is the latter, you're almost certainly paying more than you would from us.
Furthermore, since they are usually shown their inventory at marked-up prices, many salespeople at other firms are denied access to other, more attractive municipal market offerings. That combination prevents them from staying in tune with what is available in the general market. In direct contrast, our salespeople are encouraged to use every means possible to access the general market for attractive offerings.
And since they see all of our purchase prices every day, they know a "cheap bond" when they see it. (Most of these cheap bonds are purchased from "captive accounts" such as you may have at a brokerage house, and then re-offered cheaply in the secondary market). Other offerings may appear attractive, but in reality they are not, because they have hidden calls such as sinking funds or special redemptions. Our salespeople know where to be careful because all of them were trained at our trading desk.
If you recognize our offerings as being more attractive, but would still prefer the convenience of keeping all your securities with your broker, we will deliver our bonds to your brokerage house free of charge. It is very simple process and any of our salespeople can tell you how to do it. We also provide insured safekeeping free of charge for our clients.
With well over 1,000 municipal dealers nationwide, we don't claim to have the best buy every single time, but we do have better prices much more consistently than other firms. To prove it, we invite you to check our prices against other offerings of the same quality and maturity, and when you see an offering elsewhere, be sure to check with us to see if we have a similar offering at a better price.
We can't wait for every bond dealer to have their internet listings set up, so everyone will be able to compare our offerings with the rest of the market!
Free Portfolio Evaluation
Bond prices will fluctuate on a daily basis. Bonds are subject to credit rating changes, Interest rate changes and call provisions. It is important to evaluate your portfolio on a regular basis to ascertain your present investment value. To learn more about our Free Portfolio Evaluation service, please call us at 800-223-3881or send email us at sales@stoeverglass.com.