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How to Buy Bonds

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How to Buy Bonds

Ready to start investing in the bond market? First, you will need to know how to go about purchasing bonds.

Things To Know

  • Buy new bonds from the Federal Reserve or through brokers or dealers, depending on what types of bonds they are.
  • To buy a bond from another investor, use the over-the-counter market.

You can purchase US Treasury bonds on the secondary market or directly from the Federal Reserve. When you purchase bonds directly from the Federal Reserve, you must buy new issues, but there are no broker commissions. The Treasury holds regularly scheduled government auctions four times a year: the first half of February, May, August, and November. You can enter competitive bids for Treasury securities.

Before buying a government bond, make sure that you understand the risks they carry.

Buying new-issue corporate bonds from dealers

You can also buy new-issue corporate bonds through bond dealers. Corporate bonds are IOUs issued by private and public corporations both in and outside the United States. They are issued by public utilities, as well as private sector firms such as transportation companies, financial services companies, and industrial corporations. The corporate bond market is quite large, with a lot of active trading.

When bonds are first issued, their prices, or face values, are fixed. Once issued, these prices can fluctuate in the secondary market due to changing interest rates. When bonds are first issued, bond dealers assist the issuer (a company or governmental body) in selling the bonds to the public, and for this they are paid a commission from the proceeds of the sale.

Buying secondary bonds from brokers

Secondary bonds are sold over-the-counter (OTC) through brokers. The OTC market consists of hundreds of financial institutions and brokerages that buy and sell over the phone or via computer networks. Brokerage firms that deal in bonds must meet best execution obligations for bonds they buy and sell. Bonds bought and sold on the OTC market are usually sold in amounts greater than $5,000 at a time.

Where to find bond prices

Financial publications such as the Wall Street Journal publish prices of bonds traded on the exchanges each day. However, very few bonds are actually traded on a daily basis. A broker’s advice can be invaluable in helping you select and purchase the bonds that meet your investment objectives.

Bond prices may be found on the following Websites: