Things You'll Need:
- Pocket calculator with financial programming to compute interest
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Step 1
Buy par bonds in the primary or secondary market. Some bonds and fixed income securities trade in the open market. These bonds do not trade at par and thus are not always salable at par but at the prevailing interest rate. Thus during this time the bonds could trade at a premium or discount.
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Step 2
Peruse on-line trading accounts for bond offerings. Nearly every broker has a list of securities for sale. If you don't see bonds at par call the broker if possible. Bond inventory constantly changes and it is possible that bonds are in house but not yet listed. Otherwise check other on-line brokerage houses, especially brokers that specialize in municipal bonds, corporate bonds or government issue bonds.
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Step 3
Tell your broker to keep you informed if there are new issues are coming to market. New issue securities have maturities at par or close to par. Financial newspapers like the Wall Street Journal list upcoming bond issues as do weekly publications like Barron's. Many financial websites offer lists of corporate, municipal and treasury debt schedules.
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Step 4
Pay for par bonds upon receipt. There are no physical bonds for either corporate or municipal issuance. All issues are kept book entry. Every bond will probably be accrued interest. This interest is paid by you and repaid to you at the first coupon payment. For example, consider the purchase of a 10 year municipal bond with a six percent coupon. Three months removed, the semiannual coupon will carry about three months interest. Thus the total cost will be $10,000 (for the par bond) plus $150 interest. The total due the broker is $10,150.
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Step 5
Know the call feature of the bond issue purchased. Bond issues have declining call features. They often start at a premium and decline to par. Par bonds are never redeemed for less than par except for a bankruptcy.
Some bonds, like savings bonds or longer term bank certificates of deposit are redeemable at par but the accrued interest rate is reduced when early redemption buy the holder is chosen. Effectively, they have been sold at a discount.
