Muni Bond Inventory
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Something that happened about a month ago might bring some perspective to the situation. Client calls me and says that Jones broker called and pitched a muni bond paying 5.17% (YTM). Client gave me exact issue, maturity and coupon, so I looked it up on LPL’s bond offerings. EXACT same issue was 5.24% YTM. Client (in his 80s, and very astute) says to me, “Looks like they add extra commission into the bonds.”
'nuff said…
You don’t think this guy is doing the same thing to you? I love rate shoppers.
Primo, This client isn’t a rate shopper. Actually was with me when I was at the Green Machine and moved over with no qualms. We have a great relationship and he recently referred his son-in-law ($500k account) to me.
And, back to the bond-in-question…client bought 50k from me.
The only time I’ve really struggled to complete with local Jones reps on muni bonds is when Jones buys 100% of a new local issue. Even if I show better rates, sometimes the locals want to own local paper.
Congrats on the 50k. Yet another reason not to give cusip out without check in hand.Primo, This client isn’t a rate shopper. Actually was with me when I was at the Green Machine and moved over with no qualms. We have a great relationship and he recently referred his son-in-law ($500k account) to me.
And, back to the bond-in-question…client bought 50k from me.
Here is the deal: Jones's desk is going to drag in more if they underwrite or inventory. Normally, it is going to be in the 1/8 to 1/4 point range, which doesn't impact your yield that much in a high rate environment or if your bond is long.
With most firms, they do allow the reps to lower the mark up/mark down. On the bond that Bubba mentioned, my guess is that it was a 20-40 year bond, because of that high YTM. Something like that would have a mark up between 2 to 3 points for standard mark up.
Let's say that this bond has 2.5 points or ($25 per thousand). The desk is only going to see about $2.50 of that.Just out of curiosity, what was your net on the bond?Something that happened about a month ago might bring some perspective to the situation. Client calls me and says that Jones broker called and pitched a muni bond paying 5.17% (YTM). Client gave me exact issue, maturity and coupon, so I looked it up on LPL’s bond offerings. EXACT same issue was 5.24% YTM. Client (in his 80s, and very astute) says to me, “Looks like they add extra commission into the bonds.”
'nuff said…