Retail investors on Public Holdings Inc.’s brokerage will be able to buy slices of corporate bonds just like they do with stocks, bringing a wider buyer base to the multi-trillion dollar fixed-income markets.
Starting December 6, some of Public’s investors will be able to buy 40,000 bonds in increments as small as $100, with plans to lower that amount in the future. The offering spans both investment grade and high-yield credits. Availability will be determined by how active a market is for the securities.
Public will also offer a wider selection of U.S. Treasury bonds after the demand the brokerage saw when it launched the six-month T-Bill offering earlier this year.
Buying single-name credits isn’t common among retail investors, who typically opt for exchange-traded funds or mutual funds that come with low management fees for exposure to the asset class. The minimum investment size—which starts at around $1,000—as well as the over-the-counter broker-dealer network to facilitate trades stands in the way of retail investors participating in the fixed-income market.
“We started to look around the space and realized the product experience when you discover, analyze and buy corporate bonds is quite archaic,” Public’s co-chief executive officer and co-founder Jannick Malling said in an interview.
Public’s interface allows bonds to pop up when investors search for a company’s stock. For example, if an investor looked at Apple’s stock, they would also see its bonds due 2024, 2025 and 2029. The brokerage has also been working on fixed-income education and risk factors, which it has on its other offerings, to complement the bonds.
“This year, one of the major topics has been yield,” Malling said. “Retail has discovered yield in a good way and is starting to wrap their head around fixed income.”
Public’s digital custodian and clearing agent is Apex Clearing, which recently began offering some of its clients the capability to launch a platform that allows fractional bond trading. Typically, clearing firms are only able to hold bonds in $1,000 or $5,000 denominations and weren’t able to hold fractional equivalents, said Sam Nofzinger, general manager of Public’s brokerage.
While stock trading remains free, there will be commissions on bond trading at Public, roughly comparable to competitors, Nofzinger said. A typical commission on a T-Bill trade is 10 basis points, he added.
Despite opening up fractional bond trading to retail investors, Public isn’t expecting the meme-stock crowd—jolted into action by social media and brokerage apps like Robinhood Markets Inc. a few years ago—to pour into corporate credit and start trading junk debt in small increments.
“In the average retail investor’s mind, they’re not approaching bonds from the speculative side of things,” Malling said. “It’s how do I get yield and hold to maturity.”
This article was provided by Bloomberg News.