Investing in individual bonds can offer unique benefits over mutual funds for those willing to commit the time. When building a bond portfolio, you should consider many factors, including current market opportunities, your own tax situation, or the end purpose and goal of the investment. While we acknowledge there is no one-size-fits-all approach to finding an appropriate bond, we suggest you consider incorporating the following steps into your own process for buying bonds.
Seven Simple Steps to Buying Bonds
Pre-research: Make sure bond investing is right for you
Seven Simple Steps
Step 1: Look for opportunity on the yield curve for your unique situation.
Step 2: Use Fidelity's resources for market-level research.
Step 3: Narrow down the universe of bonds.
Step 4: Use CUSIP-level information to evaluate the risks of a bond.
Step 5: Determine how the bond fits in the context of your portfolio.
Step 6: Place your trade.
Step 7: Conduct ongoing monitoring after your trade.
Before getting started, use the lessons available through the Fidelity Learning Center to confirm that individual bond investing is appropriate for your financial situation. These three lessons are a good starting point:
Step 1: Look for opportunity on the yield curve for your unique situation
After confirming that an individual bond is right for you, you can begin searching for a bond. Individual bond types include Municipal Bonds, Corporate Bonds, Treasury Bonds, Agency Bonds, and CDs. Consider your own liquidity needs, tax situation, and risk tolerance when deciding which type best fits your situation. Learn more about the types of individual bonds.
Step 2: Use Fidelity's resources for market-level research
After gaining a general sense of what bonds are providing as a return on investment and narrowing down which category of bonds to invest in, the next step is to better understand that particular market. A wealth of knowledge is available under Research & Markets, including:
- Latest Viewpoints® and Analysis - The latest thought leadership from Fidelity's in-house experts.
- Latest Fixed Income Research Reports – The most recent research reports provided by industry leaders including BlackRock, PIMCO, and S&P Capital IQ
- Latest Fixed Income Market News – Up-to-date news by market type in one convenient location, with newsfeeds provided by over a dozen sources
- S&P Municipal Reports – Analysis of the strengths and weaknesses of the issuing state (for customers considering General Obligation Municipal bond debt)
Step 3: Narrow down the universe of bonds
Under Find Bonds & CDs, use the Yield Table, Search by CUSIP, Search by Name, or choose the Individual Bonds tab to run a search for bonds that meet your specific criteria, including credit rating and time horizon. All criteria are important when running your own search. To learn more, refer to our Fixed Income Glossary.
Use the clickable column headers and Key Search Criteria edit at the top of the screen to organize your results with an emphasis on the criteria that are most important to you.
Narrow down your search results even more by converting table results to graph results using the scattergraph functionality, which helps you to analyze your search results graphically and compares the live inventory with benchmark yield curves.
Step 4: Use CUSIP-level information to evaluate the risks of a bond
When narrowing CUSIPs down to a final selection, it is important to review both fundamental and trading-related data.
First, by selecting the description of a bond selected in a list of search results, a detailed overview of a bond becomes available for review. You now have access to a checklist of attributes and risks to evaluate before making a decision. Review fundamental data such as:
- Credit Risk – Bond Credit Rating (To learn more, see understanding bond credit ratings.)
- Interest Rate Risk – Duration Attribute (To learn more, see an article on understanding duration.)
- Early Redemption Risk – Call Protection, Sinking Fund Protection, Special & Extraordinary Redemption Attributes
- Downgrade/Event Risk
- Material/Issuer Events
Note that for some individual bond types such as municipal bonds and corporate bonds, additional CUSIP-specific and issuer-specific reports are available on the right side of the bond details page, provided by S&P (login required), as illustrated in the sample municipal report (image on the right).
Second, you can access trading-related data on the Price & Performance tab on the bond details page or on the main results page. Review trading-related data such as:
- Fidelity Outlier Filters – Is this bond trading in line with other similar bonds or is it considered an outlier?
- Recent Trades – Is the price at which the bond is being offered competitive to recent trades of similar quantities on the same side of the market? How actively is the bond traded?
- Depth of Book Offering – How liquid is the market for this bond currently? How wide are bid/ask spreads?
Step 5. Determine how the bond fits in the context of your portfolio
It is important to consider how an individual bond fits within the context of your current fixed income portfolio. The Fixed Income Analysis tool provides valuable insight about the composition of the portfolio after adding the potential bond.
Does the bond fit into your desired investment strategy? Does the proposed bond overweight you in a sector, maturity date, or credit rating in relation to your intended strategy? You can begin to answer these questions by analyzing bond holdings using the Fixed Income Analysis Tool , which allows you to review both Fidelity holdings as well as positions held at other brokerage firms, and also consider hypothetical holdings. Learn more about bond investment strategies.
Step 6: Place your trade
After narrowing down a bond to purchase, use the Depth of Book feature to find the best price available for the quantity of bonds you are looking to trade. Fidelity has made investing in secondary market bonds and CDs both transparent and cost-effective. Trade for $1 per bond and buy U.S. Treasury bonds for free when traded online. In addition, consider the new issue market, where all purchases online are concession free. Be sure to understand the commission schedule.
Place an order by selecting the Buy button on the bond results page or bond details page. If you used the Fixed Income Analysis tool to analyze the potential impact of a bond to your current portfolio, you can select the "trade" button directly from the tool.
Step 7: Conduct ongoing monitoring after your trade
After you've placed your trade, consider the following resources to help you monitor your investment.
- Fixed Income Alerts – Get notified immediately of material events concerning your fixed income positions, or when new bonds meeting your specific criteria become available. Learn more and enroll.
- Fixed Income Analysis Tool – Use this tool to help manage cash flow expected from coupons and bond maturities, and understand the composition of your bond, CD, and bond fund portfolio. Learn more and start using the tool.