Finding a good source for bonds requires effort. Try to locate either a firm that specializes in bonds or, within a bank or brokerage firm, an individual who specializes in selling particular types of bonds to individual investors. Take the trouble to interview brokers and discuss your needs with them.
Also, be aware that there is nothing wrong with bargaining—for example, asking the broker if she can do a little better. To a broker, a smaller commission is better than no sale. Commissions in the bond market are often negotiable. Even if you have always done business with a particular firm (or a particular broker), it pays to shop around and be as well informed about market conditions as possible. You are more likely to negotiate a better price if your broker realizes that you are shopping around.
You can judge the quality of a firm partly by what that firm tries to sell you. If you tell a broker that stability of a principal is important to you, and you are consistently offered only high-yielding—and therefore risky—securities, go elsewhere.
Certain firms, referred to unceremoniously as "bucket shops," are known for their high-pressure tactics. Such firms rely on cold-calling, that is, telephoning strangers in order to spot buyers who will buy without investigating carefully. Typically, the cold caller will tell you that he is offering you a unique opportunity to buy a terrific bond, but that if you do not purchase this bond immediately, the opportunity will disappear. Never buy anything over the phone from a person or a firm that you do not know well or without comparing prices with several dealers.
There are a number of terms unique to the bond market that you need to become familiar with if you are trading individual bonds.
Par, Premium, and Discount: The "par" value of a bond is its value at maturity; that is, $1,000. When a bond begins to trade, it normally ceases to sell at par. If it sells at less than par (less than $1,000), it is said to be selling at a "discount." If it sells at more that par (above $1,000), it is called a "premium" bond.
CUSIP Numbers: The CUSIP numbering system was established in 1967 in order to provide a uniform method for identifying bonds. (CUSIP stands for Committee on Uniform Securities Identification Procedures.) This is a nine-digit number that identifies individual bonds. It is equivalent to a ticker symbol for a stock, and it identifies each bond issue precisely. Suppose, for example, you own a State of New Jersey bond. That bond is only one of perhaps hundreds of State of New Jersey bonds that are outstanding at any given time. Each one of these bonds has very precise and individual provisions. These bonds are not interchangeable. If you want to buy or sell a bond, the CUSIP number identifies the precise issue you are dealing with.
CUSIP numbers are assigned to municipal, corporate, and pass-though securities. International issues are identified by a CINS number.
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