August 4, 2005
I am a retired attorney who has invested in fixed income securities for over 30 years. I have served as an NASD arbitrator. I have previously commented on this issue in an objection to SBC Communications request to delist its bonds in 1999. I have also been in contact with Fred Siesel from the NYSE since 1999 because we share a common interest in seeing that there is more transparency in corporate bond pricing.
Even with advances in on-line bond trading, corporate bond pricing remains opaque to the average retail investor and, from what I read in the papers, to a lot of institutional investors as well. I am an above average retail bond investor. I have numerous brokerage accounts. So today I checked 5 brokerage firms for the on-line pricing of a relatively actively traded higher quality issue: SBCs 6.15s of 2034. The ask ranged from a low of 105.481 to a high of 107.879. The bid when there was one ranged from 102.863 to 104.96. I also took a look at http://www.investinginbonds.com, and the hapless investor who made the last trade in these bonds bought his lot of 15 bonds at a price of 108.75 probably from a full service broker - full service indeed. These price discrepancies are just plain silly in a day and age when anyone can trade 100 shares of SBC stock for a spread thats measured in pennies the bid/ask was 23.73/23.74 on my trading screen.
I have believed for many years that the average long term investor is either too conservative the 3 month CD portfolio or too aggressive the 100 equities portfolio. Both types of portfolios have been battered in recent years by low short term interest rates and high stock market volatility. A lot of professionals havent fared much better than the amateurs at least thats the conclusion Ive drawn after reading detailed analyses of pension fund failures. Higher quality fixed income instruments with medium and long durations have a place in the portfolio of every market participant who is supposed to be investing for the long term. But, as long as pricing on these instruments remains as obscure as pricing on the Iraqi Stock Exchange, investors will either ignore them, or buy and sell them at the wrong prices. The NYSE request for exemption should be approved now. Better late than never.