Forum Archive Index - June 2001

["tennyson@caverock.net.nz" <tennyson@caverock.net.nz>]

>
>With say 10 - $20K available to invest in
>specific bonds (rather than mutual funds -I like to be a hands-on
>learner), your site appears to imply that the (fixed?) brokerage
>fees may be excessive. I haven't yet asked any brokers what they
>charge - know any good ones for this purpose?
>
>

I just approached my sharebroker at the time.  I think most 
sharebrokers will deal in the bond market.  The actual commission 
rate that the broker charged wasn't bad.  Certainly far less than you 
would pay for shares of equivalent value.   But all the broker did 
was ring up their bank for a quote.  And the bank, of course, had 
already tacked their own profit margin onto the quote.  So, in 
effect, you are paying double brokerage doing it this way.

If you want to find out what the 'real' brokerage is try ringing up 
and asking for the 'buy' price for the bonds you want, and find out 
at the same time what you would receive if you 'sold' the bonds at 
the same time.  I think you will find that most banks will have a buy 
and a sell price for government bonds.   The difference between the 
buy and the sell price will be twice the brokerage you pay on one 
transaction (either buy or sell).

I did try to bypass this process by approaching the bank directly, 
but they weren't interested in dealing with me direct on bonds, even 
though I was supposedly a loyal customer.   But do try your own bank 
first - you may have better clout than I did at the time!

You should also know that in New Zealand, if you sell out of a bond, 
or you hold it to maturity, you are liable to pay income tax on 
any capital gain you make.  This can cut both ways as if you make a 
'loss' on the capital value of your bond you must offset this loss 
against your income.  This is a requirement even if you 
are just a Mum and Dad casual investor.  This is different to the 
case of shares where for the Mums and Dads capital gains are tax free 
as long as you are not trading for a living.    So what I am saying 
here is that as a Mum and Dad investor you have a tax advantage over 
the managed share funds, but as a bond investor you have no tax 
advantage over the managed bond funds.

>
>I've since found www.investinginbonds.com very useful, but I suppose
>I'm looking more for ongoing discussion on NZ/Aus bonds / yield
>curve predictions etc in the manner of the share chatrooms. Maybe
>there is less to talk about with bonds  - just keep an eye on
>interest rates.
> 

Bonds tend to respond to the 'general economy'.   To get a feel for 
it you should pay attention to what the Reserve bank and various 
senior bank   Economists say about long term interest rates, short 
term interest rates which way the yield curve is moving and all that 
stuff.  If you can anticipate the trends right you can make capital 
profits on bonds.   But it is hard to see how you can get any 'hot 
tips'' from chatrooms on this sort of macro behaviour.   And it is 
macroeconomic behaviour that drives bond values.

For me it is too much hard work to try and outguess the 
pros and their bond funds which are trying to do exactly the same 
thing as you.  So for me bonds are a 'buy and hold' part of my 
investment portfolio.  But good luck to you if you can make a go of 
trading them. SNOOPY





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