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<I>TSC's</I> Guide to Bonds Online: All Aboard the Bond Express Database

The bond database of dealer inventories and prices gets served up to consumers in various incarnations.

You may never have heard of an entity called

Bond Express

, but it is behind a handful of bond-oriented Web sites.

Bond Express is a database, updated each day, of bonds in dealer inventories and the prices at which the dealers are offering them. You can find permutations of it on four free Web sites:

BondAgent.com,

Tradebonds.com,

Bondsonline and

CNNfn.com. BondAgent and Tradebonds are broker-dealers who want investors to place orders for the bonds they find in the database. (Both offer free access to their sites, however, with BondAgent asking for registration. BondAgent accounts must be funded with at least $10,000; Tradebonds accounts with at least $25,000.) Bondsonline and CNNfn make the database available for informational purposes only.

Wherever you find the database, it works the same way, letting you search for bonds based on characteristics. (For example, New York muni bonds due in 10 to 12 years rated no lower than triple-B and no higher than single-A.)

Whose bonds are they? A brief history of Bond Express best answers this question.

It starts with a San Diego interdealer broker called

Fixed Income Securities

. Run by a couple of old bond hands, Jim Dillahunty and Jack Simkin, the firm's business was revolutionized in 1987 by the introduction of the plain-paper fax machine, Dillahunty recalled in a recent interview. Suddenly, the hundreds of dealers that Fixed Income had been calling in search of bonds for its customers were able to fax their inventories each day. Within three years, Dillahunty and Simkin had set up an operation to put the items into a searchable database and enhance it with basic information about each security. Bond Express was born, and Dillahunty and Simkin started selling it to other broker-dealers for their own use.

About six months ago they sold it for good, to

Barra

, a vendor of financial market data. Barra aims to turn Bond Express into a bona fide bond trading system, in which the quotes it shows will be fully executable, says Martin Dagata, director of marketing and product management for the investment data products group at Barra. But for now, he says, it remains primarily an information system. Broker-dealers can show the database and take orders for the bonds in it, but they can't really promise to deliver anything in it, because it's only updated once a day. A bond you're interested in may already have been sold to someone else.

So how can you use it? At minimum, in the same way you can use the

Bond Market Association's

daily price reports on muni bonds: to try to get a sense of where the market is for a certain type of issue. When you access the database through any of the sites named above and search for bonds fitting a particular description, you are effectively searching the inventories of 350 to 400 broker-dealers, Dagata says. On a typical day, the database contains anywhere from 12,000 to 17,000 offerings, he says.

The price tags on the bonds in the database are a more complicated matter. Depending on which site you use to look up a bond, you might see a different price. Dagata explains why: The dealers who report their inventories to Bond Express each day quote a single price for each offering. Then, Bond Express marks them up for publication on the Web in one of two ways, Dagata says.

If the publisher is a broker-dealer trying to sell the bonds, like BondAgent or Tradebonds, Bond Express marks up the bonds according to the broker-dealer's instructions, Dagata says. If the publisher is merely an information-provider like Bondsonline or CNNfn, Bond Express applies average markups, based on all the broker-dealers who display the product.

The markups are a fact of life. Even if you went directly to the dealers who are reporting their inventories to Bond Express, you wouldn't get the bonds at the base prices that go into the database, because you would have to get them through a retail broker who would add his or her own profit into the final price.

But you should be aware that the marked-up prices you are seeing when you access Bond Express on the Web aren't necessarily any lower than what even a full-service broker would charge you for the same items. (And the Bond Express prices you are seeing aren't even firm. On three sites, a disclaimer states: "Prices, yields and availability are subject to change with the market." CNNfn's site says: "Bond prices represent round-lot offerings. Prices for odd lots may be higher.")

Bond Express wouldn't disclose even the average markups it applies for Bondsonline and CNNfn, citing confidentiality agreements.

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For

TSC

a few mutual fund portfolio managers looked at the prices and estimated the retail marks being applied to the bonds. For coupon Treasury issues, they said, the prices appear only 1/32 or 1/16 point higher than wholesale, except in BondAgent's case, where they appear about 1/2 point higher. Treasury STRIPS prices, on the other hand, appeared about 3/4 point higher on BondAgent, and about a full point higher on the other sites.

The muni prices appeared about 20 basis points lower in yield across the board. For a 30-year bond, that translates into a markup of 2 to 2 1/2 points. For a 10-year bond, the price was about 1 1/2 points higher. For a five-year bond, it was about a point higher, and two-year bonds were about 1/2 point higher.

The corporate bond prices couldn't easily be evaluated by professionals since they are quoted in price and yield terms, rather than in terms of their spread, or difference in yield, to a comparable Treasury security, which is how they are traded.

Representatives of Tradebonds and BondAgent insisted their marks are lower than the pros' highest estimates. Ed Prado, president of Tradebonds, said his firm makes 1/8 to 1 1/2 points a bond, depending on maturity, credit quality and lot size. The STRIPS mark has been too large by accident in the month since Tradebonds debuted, but will be corrected to about 1/2 point, he said.

Michael Morgan, president of BondAgent, said in an email interview only that a 3/4 point mark on Treasury STRIPS is "significantly higher than our highest markups on

any

STRIPS," and that "generally speaking our markups are among the lowest in the business." (Tradebonds makes the same claim.)

How you'd fare buying the same products from a full-service firm isn't as clear as it should be either. Other than St. Louis-based

A.G. Edwards

, all of the major retail firms on the Street (

Merrill Lynch

,

Salomon Smith Barney

,

Morgan Stanley Dean Witter

,

PaineWebber

and

Prudential

) declined a written invitation to provide information that would allow a comparison.

A.G. Edwards associate vice president Greg Carr says his firm's retail prices are "very comparable" to what the professionals saw on Bond Express. Not surprisingly, he says that reflects positively on A.G. Edwards, whose prices include financial planning services and a commitment to use the firm's capital to bid fairly on bonds a client wants to sell. "If we are close in price to an online provider, why would you want to take that chance with them?" he says.

Prado of Tradebonds says the online advantage lies in being able to select from the inventories of multiple dealers, and in being able to assess the quality of bid prices by looking at offered prices for comparable bonds. "By giving away so much free information, you're really empowering the investor," he says.

Mull it over as you browse the Bond Express database.