Newly issued bonds are sold in the primary markets. Access to the primary bond market is very exclusive and is usually by-invitation only. Typically, a large portion of the bond is reserved for institutions, with only a small percentage made available for individual investors via an auction.
Once the bond has been sold on the primary market, they can then be traded in the secondary market. Up till today, this process typically happens over-the-counter (OTC) – the transaction occurs between the buyer and seller, with a broker acting as the middleman to establish the bid and ask prices. As such, OTC bond trading can be very opaque, inefficient, and worst of all, expensive. Take the following scenario:
Mr. Tan informs his broker that he would like to purchase a particular bond at $X. His broker then reaches out to his network and a few days later, manages to find Mr. Lim. Mr. Lim has the bond Mr. Tan wants and informs the broker that he is willing to sell it for $Y. With this information, the broker goes back to Mr. Tan and quotes him $Z for the bond. If Mr. Tan is agreeable, the broker will process the transaction.
Why is there a difference between what Mr. Lim quoted and what the broker quoted? This is the spread – markup fees, transaction fees, management fees, advisory fees, commission fees, or whatever other fees that the broker may add on to the actual price as a profit to himself and his bank/platform. This is possible because the broker functions as the middleman in the transaction – there is no way the buyer and seller will know each other’s actual offer price.
At CapBridge, our institutional-grade bonds are traded via a public exchange. Bond prices are obtained directly from a bond desk and displayed real-time on our platform, eliminating the need for a middleman. As such, investors can be assured that the bid-ask prices on our platforms are fully transparent – what you see is exactly what it is. There are no transaction fees, no hidden spreads and no markups added to the quotes. At present, investors only need to pay an annual fee ranging from 0.25% – 0.5%, depending on their total portfolio value. That’s it.
Does this sound too good to be true? Is there a catch? Simply put, there is no catch. We are able to offer this to our investors because of our scale and deep network of partners. All the bonds currently on our platform are issued by publicly-listed companies and specially curated based on their credibility and risk-adjusted returns. This ensures that we are able to maintain a low fee structure while still allowing investors to enjoy a lower cost of ownership.
Find out more about CapBridge Preferred Bonds here.