Purchasing and selling strip bonds and strip bond packages
Strip bonds and strip bond packages may be purchased through a registered investment advisor or dealer who participates in these markets.
In most countries, strip bonds and strip bond packages are traded on an "over-the-counter" market (i.e., they are not listed on an exchange). Therefore, each advisor or dealer may quote a different price to buy or sell the strip bonds and strip bond packages. Also, the difference between the price to purchase and the price to sell may be wider than the typical difference allowed by exchanges.
Where the strip bonds and strip bond packages do not trade on an exchange, the investor may not be able to sell the strip bond or package prior to maturity, as there is no requirement for the investment dealers to maintain a market in the securities.
Before purchasing strip bonds, investors should be aware of the risks associated with strip bonds as investments. See the section on risks for further details. When selling strip bonds, investors should be aware of the risks of price volatility, as it is possible that you will receive less than the purchase price. For details, see the section on price volatility.
Different countries have different practices for standard denominations. The denominations available may be related to interest rate on the underlying bond. In Canada, this is common for strip bonds derived from corporate bonds. Alternatively, the strip bonds may be made available in multiples of 1,000 or any other amount. In Canada, many trading desks are quite flexible in setting the amount. When purchasing the strip bonds, you should ask what the practice is at the firm you have selected.
Commissions and other fees or taxes
When purchasing or selling a strip bond or strip bond package, investors should find out about the commission and any other fees or taxes that will be charged, since this reduces the effective yield (if buying) or the net proceeds (if selling). Some investment dealers quote with the commission included in the price, while others may add the commission separately.
Investors also may wish to inquire about both the bid and ask price, to get a better idea of the fair market value.
Restrictions on physical strip bonds
In Canada and the U.S., most investment dealers will no longer offer to sell physical strip bonds, due to the high risks and costs and policies regarding the sale of bearer instruments. They also may have policies to not purchase them, for similar reasons.
Receipt security strip bonds
For receipt security strip bonds, investors may have to contact the originating dealer(s) to make a purchase or sale. See Types of Receipt Securities for further information regarding Canadian receipt security strip bonds.
NextCopyright Keith Campbell ©2002-2006. All rights reserved.
, by Hank Cunningham
NOTE: The author of this book has extensive industry experience in the Canadian
fixed income markets, including trading strip bonds.
There is a lot of information on strip bonds in this newly published book. He is a regular guest on ROBTV. Visit his web site 