The Reasons Stoever Glass is Known for Better Municipal Bond Prices

We realize that anyone can say it, but only we have the factual reasons and internal structural differences that make it true. To explain why, let us begin with a brief explanation of the municipal bond market in general.

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. There are several good reasons for our pricing advantage, and 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 for them 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 fifty bond trades, with five to ten year maturities, that usually means 25 to 50 basis points better yields for our clients.

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 banks and 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 another big reason we can consistently offer bonds at better prices.

III. Our traders average over thirty 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, investment advisors and trust departments. We bid many more than we can use, but we bid almost all of them below the general market prices. 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 it requires very experienced traders to do it properly.

IV. In over forty 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 we can execute trades more efficiently. So bond brokers as well as investment advisors, 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 and on-line services who usually do not carry a municipal inventory, very often buy their municipals from our trading desk and sell them to you at marked up prices or for a commission.)

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 also 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.

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 and a better yield.

While some of our attractively priced bonds appear on our website, most of our real bargains never make it that far. Because they are immediately sold over the phone to investors who have advised us of their preferred maturity range, lot size and ratings ahead of time. They really go fast so only a phone call can catch these bargains in time.

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 a very simple process and any of our representatives can do it for you. We also provide insured safekeeping free of charge for clients who wish to keep their bonds with us.

 

Shop and compare! If you see an offering you like, give us a call, and we’ll usually top it.If we can’t we’ll tell you to buy it.

© Copyright 2001, Stoever Glass & Co., Inc

Although the above information and statistics are not guaranteed, they have been obtained from reliable sources and are believed to be accurate.