How much am I paying for my bonds?

Key takeaways

  • The process of buying individual bonds is different than the process of buying individual stocks or mutual funds.
  • Bond dealers may charge commissions called mark-ups that the buyer may not be aware of.
  • Mark-ups reduce the return that you get on your bonds.
  • There are ways to find out how much dealers mark-up bonds so you can find the lowest-cost provider.

Investors who trade individual stocks probably know how much commission they pay their broker for each trade. Same for most mutual funds or options. But for investors who choose to buy individual bonds, figuring out the commission may be more difficult.

Bond dealers collect commissions on bonds they sell, but these commissions, commonly called "mark-ups," are bundled into the price that's quoted to investors. Typically, most brokers do not reveal mark-ups to customers prior to purchase, so some investors may not even realize they are paying a commission to the broker in addition to the price of the bond.

Regulations require brokers to publish their mark-ups on certain types of bonds—but only after a transaction.

It's important to know that these commissions exist and how much they cost because those costs impact how much you earn on your investment. Spending less on bond trades can help improve your returns over the long run. Here's how bonds are priced, and how you can comparison shop.

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A fragmented, opaque market

Only a tiny portion of the 1.2 million bonds currently available are sold over public exchanges like the New York Stock Exchange, where investors can easily browse available securities and receive up-to-the-minute pricing information.

Instead, most bonds are traded "over the counter" between brokerage firms and their customers, or from one dealer to another. The brokerage firm that buys a bond on your behalf typically won’t show you all the relevant pricing data, such as the price it paid to acquire the security. Instead, the firm will simply quote you the bond's yield and the price you will pay, without saying how large a mark-up is included in that price.

Mark-ups are akin to the difference between the wholesale price for an item and the retail price in a store. In theory, a mark-up helps brokers cover expenses related to acquiring and selling the bond on behalf of clients, as well as ongoing costs related to custody and recordkeeping, and making a profit.

The challenge for investors is that they often don't know how much they’re paying. And mark-ups on the same bond can vary between firms—sometimes dramatically. And, there is no easy way to compare mark-ups.

The true cost of mark-ups

The cost of bond mark-ups can have a big impact on the yield of your bond portfolio. The higher the price you pay, the lower the yield you'll receive on your investment; the less you pay, the higher the yield.

If you were to buy a single $1,000 bond with a 3% yield, a $15 per bond mark-up drops your yield when the bond matures to 2.83%. If the mark-up were $1, your yield would be 2.99%. That difference can add up. If you bought 22 bonds, the average size purchase at Fidelity, paying a mark-up of $1 per bond rather than $15 would save you more than $300 in expenses.

Fidelity commissioned research firm Corporate Insight to compare prices of the same bonds offered online by several broker dealers. The March 2022 study found average online prices for corporate and municipal bonds at certain competitors to be $15 more per bond than Fidelity's prices, including our $1 per bond mark-up (see table). Longer maturity bonds had higher average mark-ups than shorter maturity bonds.

How much do bond prices vary?

A 2022 study found average pricing differentials were significantly higher than Fidelity's. 
Bond type Average price differential versus Fidelity's $1 per bond mark-up
Corporates $16.46
Municipals $13.81
Average $15.14
Fidelity commissioned Corporate Insight to study bond pricing, available online, for self-directed retail investors from 3 brokers (Merrill Lynch, Morgan Stanley, and Wells Fargo) that offer corporate and municipal bonds for comparison to Fidelity’s standard online pricing. The study (PDF) compared online bond prices for more than 27,000 municipal and corporate inventory matches from February 4 through March 7, 2022. It compared municipal and corporate inventories offered online in varying quantities. The study found that, on average, the 3 online bond brokers were asking $15.14 more per bond. Corporate Insight determined the average price differential by calculating the difference between the prices of matching corporate and municipal bond inventory at Fidelity, including Fidelity’s $1 per bond mark-up for online trades vs. the prices offered online for the same bonds from the 3 brokers, then averaging the differences of the financial services firms. The analysis included investment grade corporate and municipal bonds only. An order size of 22 bonds was selected to illustrate the hypothetical trade because this is the average for Fidelity’s retail brokerage account holders who purchased individual municipal or corporate bonds during 2019.

How to learn what you’re paying

So how do you know what your broker is charging? Start by asking. Most brokers should be able to answer honestly and directly. If your broker seems evasive, you have every reason to be suspicious. It’s also a bad sign if they claim there is no mark-up, because "no mark-up" is almost never the case.

You can also comparison shop. Comparing bond prices at different brokers is trickier than comparing the price of a refrigerator at 2 different stores, but it can be done. If you have accounts with different brokerage firms, you can log on and check whether they offer the same bond, then compare the prices, which include the mark-up. This won't always work, however, because not all brokers offer the same bonds.

Another option is to review trade reporting data provided by the Municipal Securities Rulemaking Board (MSRB) and Trade Reporting and Compliance Engine (TRACE).

How Fidelity can help

You can compare bond prices on's bond offering Yield Table. Click a yield number for either a Corporate or Municipal yield, which will take you to a Search Results page. Find the 3rd Party Price/Recent Trades column (third from the right), and select View. Or, if you are researching a particular security, go to the Price & Performance tab of that bond’s details page (log-in required). Under Basic Analytics, select View Recent Trades. Both ways will get you to our Recent Trade Table:

MSRB and TRACE data

The data in the chart is described in the text.
Screenshots are for illustrative purposes only.

Prices and yields change from day to day. By using the historical trade data from MSRB and TRACE, you can see where prices and levels have been trading in the recent past and compare them to the current live offer or bid prices. In addition, by comparing customer prices with dealer-to-dealer prices for trades executed for the same quantities at the same time, MSRB and TRACE data provides increased transparency into the mark-ups that bond brokers are charging their clients.

"Fair" pricing is a personal decision

What makes a mark-up fair and acceptable? It depends partly on personal opinion. Investors who have a strong relationship with a broker and value the service they provide might feel more comfortable paying slightly higher mark-ups. However, many investors likely will find lower mark-ups more attractive—especially considering the impact mark-ups have on yields.

Use your knowledge about how bond mark-ups work to compare the service and prices offered by different brokerage firms or bond dealers. Besides comparing actual prices, consider how transparent different dealers are about revealing those numbers and what goes into setting them. Greater transparency may give you greater peace of mind. The bond market may once have been a murky place, but regulation and technology are steadily improving transparency. You don't have to stay in the dark about the cost of your bond investments anymore.

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This information is intended to be educational and is not tailored to the investment needs of any specific investor.

In general, the bond market is volatile, and fixed income securities carry interest rate risk. (As interest rates rise, bond prices usually fall, and vice versa. This effect is usually more pronounced for longer-term securities.) Fixed income securities also carry inflation risk, liquidity risk, call risk, and credit and default risks for both issuers and counterparties. Unlike individual bonds, most bond funds do not have a maturity date, so holding them until maturity to avoid losses caused by price volatility is not possible. Any fixed income security sold or redeemed prior to maturity may be subject to loss.

Lower-quality debt securities generally offer higher yields, but they also involve greater risk of default or price changes due to potential changes in the credit quality of the issuer. As well, any fixed income security sold or redeemed prior to maturity may be subject to loss.

Fidelity does not provide legal or tax advice. The information herein is general in nature and should not be considered legal or tax advice. Consult an attorney or tax professional regarding your specific situation.

Fidelity Brokerage Services LLC, Member NYSE, SIPC, 900 Salem Street, Smithfield, RI 02917