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The secondary bond market refers to transactions (buy and sell) of bonds that have already been traded as part of a new issue offering. The secondary market covers the complete range of fixed income securities. The fixed income market is predominantly a dealer-to-dealer market although certain bonds are listed and traded on the NYSE.
The secondary market varies in liquidity, ranging from the Treasury market (where transactions are frequent, sums are large, and bid/ask spreads are thin), to markets such as the municipal bond market or the mortgage backed security market (where a multitude of different offerings of smaller denominations tend to make these markets less liquid).
To search for individual fixed income offerings in the secondary market available through Fidelity, go to the Research tab > Fixed Income and select Find Individual Bonds. You can use the Find Individual Bonds page to look for bonds by criteria (Maturity Date, Coupon, Yield, etc.) or by CUSIP.
Fidelity's fixed income inventory is composed of offerings from Fidelity Capital Markets Services and other third-party providers. Many of these securities can be viewed and traded online. Note that Fidelity's inventory will generally not represent the universe of outstanding securities of a given bond type.
Fidelity may get bonds directly from national and regional broker dealers or use national and regional broker dealers that are affiliated with the BondDesk offering platform (see What is BondDesk?). In both cases, third-party inventory offerings are denoted with an asterisk (*) next to the issuer's name. Inventory not marked with an asterisk is Fidelity Capital Markets Services' own inventory.
BondDesk is a third-party fixed income securities aggregator with over 70 participants that contribute and/or distribute fixed income securities.
By partnering with BondDesk, Fidelity is able to offer its customers a broad variety of fixed income inventory. Some of the contributors to the BondDesk inventory include securities firms such as UBS, Bear, Sterns & Co. Inc., Credit Suisse Group, Bank of America, N.A., and A.G. Edwards & Sons, Inc. Fidelity is also a contributor of inventory to the BondDesk offering platform.
By pooling inventory in this way, BondDesk assists in helping create a more electronically enabled, centralized marketplace.
The Graph View illustrates your results plotted along as many as five benchmark yield curves. The Table View displays your results in a sortable list. Many customers find it easiest to narrow their choices through the Graph View, and then obtain more information about the bonds they are interested in from the Table View.
The Graph View illustrates your results plotted by maturity and yield on as many as five benchmark yield curves.
Yield curves shown are interpolated curves based on previously reported third-party closing prices and yields. They are based on a cross-section of bonds applicable for a stated credit quality and are not limited to the bonds that a user selects as part of a search. The yield curves are presented for informational purposes only. Fidelity cannot be held liable for this information.
Bonds offered are subject to a Price Test and a Risk Test*. Bonds labeled Tier 1, or T1, have passed both the Risk Test and the Price Test. Bonds labeled Other have been classified as Outliers in either the Risk Test or the Price Test.
The detail as to why a particular bond is in the Other category of bonds is shown by the following notation in the Bond Details or Table Search Results screens:
*The Risk Test and Price Test are specific quantitative observations. They are based solely upon the position of a particular bond in the context of its peers (as defined by bonds of a like credit rating). Use of these terms should not imply that Fidelity is recommending any bond(s) over others.
Risk TestTo pass the Risk Test, a bond must be trading at a level that Fidelity believes is appropriate for its risk rating as defined by its yield curve. Bonds that do not pass the test are labeled Risk Outlier (RO). Bonds that pass the test are labeled Risk Pass (RP).
In addition, all bond with credit ratings of Moody's Baa3 or lower, or S&P BBB- or lower will not pass the Risk Test and be labeled Risk Outlier (RO).
For Corporate bonds:
The Option Adjusted Spread (OAS) and Option Adjusted Duration (OAD) is calculated for each bond.
Each bond is then compared to a series of Option Adjusted Curves that are created based on a larger universe of securities. For these bonds if the OAS is greater than the average OAS of bonds of lower credit quality with a similar OAD, the bond is considered a risk outlier. (For corporate bonds the classification of AA and AAA has been combined into a single rating: AA/AAA).
For example: if a AA bond is trading at an OAS greater than the "average" OAS of an A bond (for the same OAD) this is considered a risk outlier. Likewise for an A bond that trades at a higher OAS than the average BBB bond.
For Municipal Bonds:
The OAS and OAD is calculated for each bond. An OAS/OAD curve is also created for the MMA AAA GO curve. Each offering is compared to the OAS/OAD of the MMA curve and any offering that is greater than 1 standard deviation from the MMA curve is deemed to be a risk outlier.
All calculations are performed on an Option Adjusted Spread (OAS)/Option Adjusted Duration (OAD) basis, using similarly derived yield curves, which allows non-callable bonds to be compared equally.
Price TestTo pass the Price Test, a bond's current offered price is compared to its latest third-party closing price. Bonds with a price variance of 1% or less between these two prices pass the Price Test, and are labeled "PP". Bonds with a price variance of 1% or greater between these two prices fail the Price Test, and are labeled price outliers, or "PO."
The Risk Test and Price Test are applied to varying degrees to the following bond categories:
Note: Callable bonds are priced based on yield to worst, but displayed in the scatter graph view on a yield to maturity basis.
The Table View displays all the bonds that meet your criteria. In some cases this could be hundreds or thousands of bonds. To narrow your search, you can:
Note: Bond attribute and analytic information is provided for informational and/or educational purposes and are not intended to provide tax, legal or investment advice and should not be construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any security by Fidelity or any Provider. Neither Fidelity nor any supplier of market data guarantees the timeliness, sequence, accuracy, or completeness of market data or any other market information, or messages disseminated by any party.
Fidelity provides two tools that can help:
Access both tools from the Research tab > Fixed Income > Build or Review Your Fixed Income Portfolio.
For Corporate and Municipal bonds, it is now possible to view recent trade history of a particular issue. From the Bond Details, the Analytics page displays the most recent reported trade as Recent Trade, and provides a link to View Recent Trades. Clicking on this link will open a pop-up window to display up to the most recent 20 trades, with the time, price, and size/quantity of each trade.
The trades listed are trades that occurred across the US bond markets; in other words, they are not only Fidelity’s most recent trades (if at all), or exclusively the trades of Fidelity’s customers. All dealers are required by the regulators (the NASD for Corporate bonds, the MSRB for Municipal bonds) to report this information to them. The information is in the public domain and Fidelity provides a real-time display of this data as a service for its customers.
Trade Reporting Compliance Engine, or TRACE, is owned and maintained by the NASD to track trading activity in US Corporate Bonds. The Municipal Securities Rulemaking Board, or MSRB, is responsible for making the rules that regulate the dealers who deal in municipal bonds, municipal notes, and other municipal securities.
Each bond on the Search Results Table View has a trade link next to it. Click this link to go to the Trade Screen.
You can also:
Note that before a trade can be released, a suitability match is performed by cross-referencing the requested trade against the investment objectives of the account with the type of bond under consideration. To view or change your investment objectives for an account, go to Accounts & Trade > Update Accounts/Features > Investment Objectives.
Note: To sell fixed-income securities call a Fidelity Fixed Income Specialist at 800-544-5372. Sell orders may be performed online where a bid side price and yield are indicated in the Search Results table.