How to Sell a Bond Before Maturity

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How to Sell a Bond Before Maturity. Investment bonds are bought and held for a designated time until they mature and the investor receives his principle back. While the bond matures, investors receive payments based on the bonds' interest rates. If you need to sell a bond before maturity, there are a few things you can do to minimize your losses.

Things You'll Need

  • Prospectus
  • Bond certificate
  • Broker

Talk to your broker about selling your bond early. Even though you own the bond, it must be sold through your broker. If you received a bond certificate when you were issued the bond, then you must return it to the broker in order to sell it.

Check with the issuer of the bond or the investment prospectus to see if it is callable. When interest rates fall, some bonds have a clause that allows the issuer to recall the bond for a predetermined price. A bond that is called may save you from paying a transaction fee, but you might not receive the best price for it.

Ask about the fee you will be charged when you sell your bond. Your broker will often charge you a transaction fee, called a markdown, when you sell a bond before maturity. This charge will be a percentage of the total value of the bond and will change from broker to broker.

Examine the direction of interest rate changes before you complete the sale order. During times when interest rates increase, you may have to decrease the price of your bond in order to find a buyer. In these cases, you will be selling your bond at a loss and will not receive your entire principal back.

Reinvest the money you get from the sale of your bond. Remember that if you lost money on the sale, then your total invested funds decrease and you'll have to put more money into the market in order to keep the total of your investments constant.

Tips & Warnings

  • When you set up an investment strategy that relies on the resale of bonds, like barbell management, be sure to account for the fees of selling bonds before maturity.
  • Selling your bonds early is one way to free up investment funds for emergency use.
  • Reinvesting your money immediately after selling a bond is a form of bond swapping. This technique can be a good way to reduce taxable income and manage portfolio risk caused by interest rate fluctuations.

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