FT.com / Lex - Lex: US bonds

FT.com / Lex - Lex: US bonds
Lex: US bonds
Published: February 7 2005 20:13 | Last updated: February 7 2005 20:13

It may not turn the staid bond investor into a feverish day trader, but the fact that US bond prices are becoming easier for the little guy to get hold of is still significant.

Last month, the Bond Market Association shone its light on the municipal bond market. On Monday, it was the turn of corporate bond prices which are now available to retail investors in real time and for free.

Greater transparency should reduce the bid-ask spreads, which should benefit existing investors. Whether it will attract new demand is less clear. Most purchasers of bonds are cautious types, who prefer to get their fixed-income fix via a portfolio rather than a single name. And merely knowing recent prices is unlikely to shift them from the typical buy and hold stance.

What might it mean for broker-dealers? In fixed income, these are the providers of liquidity, putting their own capital at risk. Greater transparency may make some of the riskier deals less appetising for them and generally reduces the value any middleman can extract. This could put off enough broker-dealers to hurt liquidity in the more esoteric securities. While this may not seem much of an issue in today's good credit conditions, these will not last for ever.

What greater price information should do, however, is to help the smaller broker-dealers compete with larger firms in the cash market. That, in turn, will only accelerate the move of the big dealers into the sexier and more rarefied world of derivatives.