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Bond Markets Go Electronic

Have you ever wondered whether that bid your firm's bond desk made for your best client's $100,000 worth of California GO's was really the best they could do? Or why is it thatwhenever your favorite bond trader at the muni desk insists the 10-year water bonds you want aren't available, your client gets a cold call from another firm offering that exact nonexistent bond? Anyone who's ever traded a municipal,

Have you ever wondered whether that bid your firm's bond desk made for your best client's $100,000 worth of California GO's was really the best they could do? Or why is it thatwhenever your favorite bond trader at the muni desk insists the 10-year water bonds you want aren't available, your client gets a cold call from another firm offering that exact nonexistent bond? Anyone who's ever traded a municipal, corporate or CMO bond can't help but harbor suspicions when it comes to trading desks, some justified, others not.

Years ago, most brokers would simply have been left wondering. Today, however, the Internet is opening up the mysteries of fixed-income pricing, not to mention the huge dealer inventory to anyone willing to invest as little as $100 a month.

Bonds a'la Carte The Internet offers advice on everything from calculating accrued interest to how municipalities can get the most bang for their buck when issuing bonds. One site,, goes as far as to allow cities, counties and other municipal bodies to offer bonds on the Internet to anyone willing to buy. Several large issuers, including the city of Portland, Ore., list their new issues here without the encumbrance of underwriting fees and such, making the yields quite attractive.

Unfortunately for the average broker, large deposits and minimums (beginning at $1 million), make buying bonds directly possible for only the largest producers. And of course, even a group of significant producers pooling their resources would have difficulty bypassing their firms' underwriting systems and trading desks.

Other services, rather than trying to bypass the traditional bond market, make a business of providing information to brokerage firms on municipal, corporate and agency bonds. The two main services, BondTrac, based in Oklahoma, and Bond Express, in San Diego, figured there had to be a better way for traders to look for municipal bonds than paging through the hundreds of faxes sent daily from other dealers (see "Comparing the Services," below). These firms were among the first to list municipal bonds on a database and sell that information to trading desks and brokers. The result: Easily sorted lists of all bonds that were currently available. And that was just the beginning.

Know the Market Reams of information now are available both on-line and through the Internet that give a retail broker the power of a fixed-income desk at a reasonable cost. Before you call your trading desk for something that looks good with a 10-year maturity, consider this:

* Hundreds of dealers submit their inventory to both BondTrac and Bond Express everyday. On a given day anywhere from 5,000 to 10,000 issues are listed in the database. They can be sorted in just about anyway you could imagine, from rating, price, maturity and yield, to flagging bonds that are pre-refunded, bearer or non-callable.

A search for California bonds rated A to AAA produced 832 issues on BondTrac and 755 on Bond Express. Dealers ranging from giant Merrill Lynch to boutique R.H. Investments offer blocks of bonds from a miniscule 10 to oversized 2,000, all on one screen.

* While the Internet services provide bare-bones information like offering size, description, price and dealer information, the stand-alone software versions offer a lot more. For example, you can use a bond calculator that lets you see exactly how much accrued interest will be due (or received) for a particular bond trade. Both Bond Express' and BondTrac's packages allow the user to enter a price matrix that can be customized for different maturities to include a markup--if a client is sitting in your office, you can show the offering list with the markup. BondTrac allows multiple markup matrixes so offerings can be tailored to different clients--the client who buys municipals 100 bonds at a time can see a different offering sheet than someone who usually buys oddlots. Offering sheets can be printed from both programs for distribution to clients.

* BondTrac's Internet site includes free areas customers can access. While not including price and dealer information, anyone browsing on the site can readily see what's available using the same search criteria paid subscribers use. For brokers not needingall the power of the full BondTrac service or simply wanting to take a test-drive, try

Not Just for Traders Anymore While both BondTrac and Bond Express have targeted trading desks in the past, both firms are focusing on individual brokers more than before.

Brokers who specialize in bonds have used sources like Bloomberg and Kenney (a municipal bond information provider), but those services are out of reach of all but the largest producers. Traditional providers like the Blue List have been criticized in recent years for stale information. Using the Internet, municipal bond information providers have been able to offer extraordinary information for as little as $99 a month. So how can you use it? Here are a few ideas.

* Use the digital bond offerings as a supplement to your own in-house inventory. Trading desks often are swamped, and it may be hours before a busy trader has time for your inquiry. Check it out yourself on-line and then go to the trading desk with CUSIP number in hand. Also, if you're not sure whether your bond desk is offering the best value around, check the price. Both Bond Express and BondTrac offer CUSIP searches, so you can see if anyone else is offering the same bond. BondTrac's Internet service will even notify you when a bond with the CUSIP you entered becomes available.

* Generate sales ideas. Ask five traders what looks good and you'll get five different responses. Instead, look through bond offerings yourself. You'll see ideas that will be of interest to certain clients that your trader would never think of.

* Do client offering sheets. Both programs can generate bond offering sheets for your clients that have a markup built in, which do not list dealer sources. If you're trying to make a good impression on a prospect who buys a lot of municipals, try sending a bond list or fax that includes all the inventory listed on either service. If a bond buying client has never seen this before, they'll be impressed by the size and depth of the inventory.

The Internet may not change the dynamics of bond transactions as much as it has stock trading, but it will make the fixed-income market more efficient as time goes on. Bad news for brokers? Hardly. Lower transaction costs always drive volume higher. And the more information there is to sort through, the more opportunities you have to add value--and get paid for it.

Two major companies dominate the market for fixed-income information: BondTrac and Bond Express. While both offer similar services, each has strengths and weaknesses.

BondTrac 11100 Stratford Dr. Suite A-700 Oklahoma City, OK 73120 800/627-4182

Internet version $99 per month. Software (Win 95/NT) $195 per month, network version $495 per month for up to 20 users on a single network with only four on at one time.

Advantages: * Larger municipal inventory * True 32-bit Windows (Registered trade mark) 95 interface * Free information on Web site * Easy-to-use interface on both Web site and program * Internet download of information * Alert functions on Web site when bonds become available * Lowest entry level price ($99 per month Internet access)

Bond Express 7220 Trade St. Suite 320 San Diego, CA 92121-2327 800/639-0200

Internet version $250 per month. Software version has one-time set-up fee of $495. Municipals-only service $225 per month, taxable bonds-only service $315 per month, all bonds $400 per month.

Advantages: * Larger corporate and CMO inventory * More search options * Easy-to-use interface

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