July 17, 2023

It’s Time to Transform the Retail Bond Market

Jonathan Birnbaum

Founder of OpenYield

OpenYield is on a mission to modernize bond trading for retail. 

Try to buy a bond today, and you’ll experience something anachronistic. Like using a rotary phone, you can make a call, but the process will be clunky and frustrating, and consequently won’t get used often. Retail investors face these challenges in the bond market, and consequently shy away. 

The status quo is problematic because investors are missing out. The opportunity to go beyond funds and embrace direct ownership offers benefits of customization, tax efficiency and more. But until the asset class evolves beyond its analog remnants, these benefits remain out of reach for the individual investor.

10 problems plaguing the retail bond market today: 

  1. Limited Access. Many new retail brokers do not offer bond investing, and existing platforms often suffer from single-vendor whitelabel lock-in. 
  2. Overwhelming Selection. Investors need interfaces to guide them. They can’t be left to sift through dozens of incomprehensible IDs for a single corporate issuer. 
  3. High Minimums. High minimums exist throughout the incumbent marketplaces due to fixed costs in processing trades from execution to settlement. While you can now buy fractional equity shares, you rarely can even buy single units of bonds.  
  4. High Fees. On top of paying the market bid-ask spread to the liquidity provider, retail investors pay additional markups to multiple distribution intermediaries. Most platforms don’t even support limit orders.  
  5. Quotes Are Indicative. The status quo allows dealers to update their prices in response to a client order, creating uncertainty around pre-trade prices and low comfort in execution quality.  
  6. Execution Delays. Since the standard protocol today allows human dealers to respond to orders, there can be several-minute delays between order submission and trade execution. 
  7. Restricted Market Data. Compared to equities, bonds are presented with narrow information. Even simple charts and spread comparisons would be a huge improvement. 
  8. Weak Analytics. Bonds can be viewed along various dimensions, such as price, yield and spread. The status quo experience is a generally static presentation, vs dynamic calculation tools that can be embedded as standardized widgets. 
  9. Wonky Ladder Tools. Bond ladders deliver simple diversification across underliers and duration. Unfortunately, the laddering tools that exist today are needlessly complicated and daunting. 
  10. Lack of Portfolio Tools. The ability for retail to automatically generate and execute customized portfolios is the future. Akin to how robo-advisors generate ETF allocations today, algorithms can generate optimized portfolios of bonds tailored to individual needs. To power the process, there needs to be reliable realtime data and execution connectivity to a live marketplace.  

Amid a backdrop of attractive interest rates and a burgeoning ecosystem of electronic dealers providing liquidity, OpenYield is attacking these issues with a modern platform to simplify fixed income for brokerages. Built on new tech, our marketplace has live markets, bundled data and flexible APIs, making it easy for firms to enter the market or enhance their offering. 

The bond experience is primed for improvement. The reward for retail portfolios everywhere – cheaper, faster, better access – is significant. 

The Bond Market Powering Retail

Our modern bond marketplace enables you to serve clients with modern technology, 100% firm quotes and aggressive pricing. This is the bond market you’ve been waiting for.

Reach out to us today.