Fidelity Bond Trading – An In-Depth Look

Fidelity Bonds

I recently reviewed Vanguard’s bond trading platform, presenting some things the company does great as well as various areas of opportunity.  In this article, I would like to shift the attention to Fidelity bond trading.

  To see a list of high yielding CDs go here.  

Overall, I think Fidelity does a great job as a provider of bond trading services to retail investors.  Despite occasional issues concerning the buying or selling of a bond, nothing about Fidelity’s bond platform has caused me to move my business elsewhere.  What’s so great about trading bonds at Fidelity?  Here are a few things:

  1. Commissions – If you are willing to trade Treasuries online, there are no commissions. Additionally, all other bonds can be traded in the secondary market for just $1 per bond. Although there are no minimum purchase requirements (besides dealer requirements) for secondary market bond transactions, Fidelity does have an $8 minimum online and $19.95 minimum over the phone (rep-assisted). Those minimums could increase the average commission per bond, if you are trading fewer than 8 bonds online or fewer than 20 bonds through a Fidelity representative. On the other hand, your commission could actually be reduced to less than $1 per bond, if you place a trade for more than 50 bonds with one year or less to maturity.
  2. Limit Orders – Fidelity allows investors to enter limit orders for bonds. In my opinion, this gives Fidelity a major competitive advantage over other retail brokers that do not allow this. On numerous occasions, I have had limit orders filled at prices I entered that were inside the bid and the ask.
  3. I never get timed out on Fidelity’s website. On a regular basis on Vanguard’s website, I can’t even finish scanning the bonds that appear from a bond screen before getting timed out.
  4. Fidelity’s website allows multiple screens to be running at once while logged into the bond platform. This is quite helpful when I am tracking the prices of various bonds intraday.
  5. Fidelity allows investors to purchase foreign-currency-denominatedfixed-income securities. For commissions related to that service, refer to the commission schedule.

Although I think Fidelity’s bond trading services are likely sufficient for the majority of retail investors, it doesn’t mean there aren’t areas of opportunity.  Here are some examples:

  1. For some reason, there is no search by CUSIP box on the search results page.  There is plenty of room on that page for Fidelity to include a search by CUSIP box.  And it should be included on every single search results page.
  2. Price changes do not always update quickly.  The quotes on Fidelity’s search results page have a bad habit of being static and slow to update when you refresh the page.
  3. It has been a few years since I sold a CD at Fidelity, but in my experience, the bids I received on my CDs were all extremely uncompetitive.  When I sell CDs at Vanguard, I typically receive numerous bids, the highest of which usually comes back roughly in line with the market.  At Fidelity, however, the situation was quite different.  I’d always received one bid, which came in way under the market and way under what I could receive at Vanguard.  I know this to be the case because I used to request bids on the exact same CD (exact same CUSIP and same number of CDs) that I held at both Vanguard and Fidelity.  I’ve had Fidelity’s bids come in as high as four points under Vanguard’s.  Just to reiterate, it’s been a few years since this has happened and perhaps Fidelity has fixed the issue.  I’d be curious to hear from readers on this.
  4. Even when Bloomberg is showing better offers for bonds I am interested in buying, Fidelity bond reps have never agreed to lift an offer off Bloomberg.  Vanguard has done this for me on many occasions.
  5. As I mentioned in my article about Vanguard’s bond trading services, in my experience, Vanguard always passes along price improvements to clients.  Based on my trading experiences, I can’t say the same about Fidelity.  After every bond trade, investors should review the time and sales.  Check the price at which the dealer to dealer swap occurs that happens simultaneously with your order being filled.  The swap should occur at a price that is lower than your filled order, but only lower by the amount of the commission.  For example, if you purchase 10 bonds and your limit order is entered at 99.50, the bonds will be sold to you at 99.60 (reflecting the $1 commission).  Occasionally, I’ve caught something similar to the following happening on my trades:  Limit entered at 99.50; dealer swap occurs at 99.45; my order filled at 99.60.  At Vanguard, I would receive the price improvement, resulting in my order being filled at 99.55 and not at 99.60.  That doesn’t always happen at Fidelity.  For those who prefer comparisons to the equity market, imagine entering a limit order for a stock at $99.50, your broker managing to secure the shares at $99.45 but selling them to you at your limit price plus a commission.  In my experience, that doesn’t happen in the world of stocks.  And it shouldn’t happen in the world of bonds either.  Remember that the issue concerning bond market price improvements at Fidelity doesn’t occur all the time.  There are times when I have received the price improvement.  But for some reason, it does occur sometimes.  

Despite some areas of opportunity for both Fidelity and Vanguard, overall I am quite pleased with their bond trading services and think the average retail investor will have a hard time finding better options.

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Comments

  1. RA says

    Fidelity actually does not trade bonds. They outsource it to BondDesk which also does the bond trading for just about all the discount brokerage firms. So buying a bond through Fidelity is not different than buying it somewhere else in most cases. E*Trade will sometimes give you a better price (slight). Fidelity will never do it as you noted.

    Because Fidelity is not actually executing an order, they will not give you a better price because they can’t without eating the difference themselves.

    If you sell a bond, they will often buy it and hold it in inventory which will sometimes get you a better price than at other outfits where the bonds are put out for bidding and you only get lowball offers.

    In the case of CDs, they are probably putting them in inventory so they are looking to lowball you so they can turn around and sell it at a profit. I’ve never sold at CD and would not advise doing so as it is an invitation to get fleeced.

    Overall, I would agree that it is hard to beat Fidelity for bond trading. Not because they are particularly attractive but just because they have lower commissions. I think E*Trade is probably the better option since they do give price improvements and you are buying through BondDesk regardless.

    Zions is also a good option and can offer a lower commission than Fidelity on larger orders.

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