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Buying CDs On The Secondary Market

racecar
  |     |   628 posts since 2014

Can anyone help explain the terminology and what the various boxes show in the below screenshot of a Fidelity secondary market CD listing? And how to interpret the info to decide if it's worth buying?

https://ibb.co/nsScDJ6R

I've never bought secondary CDs and would like to figure out how they work. Above are 4 random samples from today's Fidelity Secondary Market CD page, but I have no idea what the info in the boxes mean (I chose samples that are call-protected and mature in about 2 years).

I understand the first boxes (bank name, original rate, when the simple interest is posted, maturity date, call protected)... but can someone explain everything after that? (what all the info under BID and ASK means).

What's the purpose of "Depth of Book" and is it really important to know? And what's "3rd Party Price"?

Take the top one for example. What does each thing mean? "Coupon" is "3.200" (is that the original rate?) but the yield is "4.366" (how can that be so much higher than the original rate?) And that's different than "Yield to Worst" and "Yield to Maturity" (4.179), why? 

Also, prices for most are under 100 (99.XX) but the bottom one is OVER 100. What does that mean? That you'd have to pay more than it's worth? What reason would there be for that?

I heard if you take over a secondary CD you might have to make a separate payment afterwards to the original owner to compensate them for the interest that accured until you took it over? Is that baked into the price or an additional payment? How do you know the amount it'll be?

Could someone use one of the samples above and explain everything as if they were actually buying it, what it all means, how much it would cost, responsibilities in buying it, etc? Plus anything you want to mention (pitfalls, things to be aware of etc). Thanks.

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Mark11
  |     |   13 posts since 2025
I'll give it a shot but double check me...;)

The ones under $100 are under par you'll get par which is $100 if you hold until maturity, if you pay over par the same thing just you lose a little there if you hold until maturity.

The reason you are paying over par for the one is because of the higher rate, the other ones are lower rates relative to what the going rates are now so you buy them for under par.

Bid is the price being offered and ask is what the seller is asking.

Yes the 3.20% is the original coupon, that is what you'll get and then at maturity you get the difference when you get par at maturity.

I don't buy on the secondary market but the accrued interest should be figured in with the price he gets, I don't think you actually pay him anything, all in the price.

As far as how much you'll pay is up to you and the seller, you put in a bid at what you think it's worth and see if you get it, otherwise pay the ask price.

Plus you have to pay a commission too.

I had to google the depth of book....Depth of book provides a visualization of this order book, often displayed as a ladder, with buy orders on the left and sell orders on the right


Also from just looking at it, the 4.55% coupon would be best for someone that needs to use the payments to live on and the 3.25% would give you the best return if you held them all to maturity but pretty much a toss up, imo
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racecar
  |     |   628 posts since 2014
"Yes the 3.20% is the original coupon, that is what you'll get and then at maturity you get the difference when you get par at maturity."

What's that mean in plain English please? :) So if I buy one of these $1,000 CDs for $982 and it's held for about 2 years until maturity, how much $ total would I get at maturity when I cash it out? The "coupon" is 3.2% but the "Yields" are around 4.2%-4.3%.... don't understand

https://ibb.co/nsScDJ6R
(top one just for example)
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Mark11
  |     |   13 posts since 2025
Annual coupon payment $1000.00 times 3.2% = $32.00
Total coupon payment over 2 years $32.00 times 2 = $64.00
Gain from the discount is $1000.00 minus $982.00 =$18.00
Total return is $64.00 + $18.00 = $82.00 for the 2 years
Divide the $82.00 by 2 for the 2 years and you get $41.00 a year
$41.00 a year on a $982.00 initial cost = 4.17%

The 4.36% is if you paid the $97.86 instead of the $98.20

Betaguy is right though, you're overthinking it... they give you all the numbers you need to know.

Don't forget it's only a $1,000.00 cd you're talking about so times it by 10 and you get $410 a year and so on.
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John19
  |     |   397 posts since 2022
MACNYC where ya at?
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RichardW
  |     |   819 posts since 2019
For your reference, here is Fidelity’s giant glossary of terms:

https://www.fidelity.com/glossary/overview 

[They list their definitions of bid and ask under the terms “price (bid)” and “price (ask)”]
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racecar
  |     |   628 posts since 2014
Thanks everyone, but I don't understand "how it works".
-Why would the yield be so significantly different than the Coupon in a few of them, like the top one? (Coupon: 3.200, Yield: 4.366, that's a huge difference).

Take that top one as the example:
https://ibb.co/nsScDJ6R

It looks like there are 3 available (Ask Qty) and the minimum purchase is (1) of them, right?
The Asking price is $982 for each one (98.200), and people are willing to pay $978.61 (97.861), right?
Say I'm willing to accept the asking price and buy one of these for the asking price of $982. Does that mean for $982 I bought around 2 years of a $1,000 CD with a simple interest rate of 4.179%? Or is that wrong?
Continuing with this top one as an example, if held to maturity, what will the total $ be when I cash it out at maturity? I see all kinds of figures -- Coupon for 3.200, Yield for 4.366, Yield to Worst and Yield to Maturity at 4.179, etc. I understand the glossary, but don't under "how it works" and which figures to use...
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betaguy
  |     |   181 posts since 2022
you always get par when you hold till maturity. So, $1000 on the $982. And, somehow the $18 difference between those numbers makes up the difference in yield. The coupon is 3.20% on par. so, $32 per year. + 18/2yrs= 9yr. + $32= $41yr. so, $41 is close enough to 4.179%. dont know where the rest of it went (.079%) Btw, I just look at 'coupon' and Yield to Worst and Yield to Maturity (which are usually identical)
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racecar
  |     |   628 posts since 2014
Thanks Mark11 and Betaguy.

By the way I'd look for a new brokered CD first before looking at the Secondary Market, but I wanted to be able to understand the secondary market in case I do need to use it. For instance, yesterday there were NO 2-yr Call-Protected CDs available at all on Fidelity (there were 18mo, 3yr 4yr and 5yr, but no 2yrs that were call protected). I know offerings change daily but (for various reasons) I can only use Fidelity's offerings, not Vanguard, Schwab or elsewhere, so that's why I wanted to at least understand the secondary market, in case Fidelity doesn't have much to offer when I'm ready to get some.
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Mark11
  |     |   13 posts since 2025
Bond yields have been dropping, there were some decent CDs but they weren't moving and because bond yields kept dropping they finally pulled the CDs, they'll offer more but probably at a lower yield. Vanguard had a 2 year from Morgan Stanley paying 4.2% but it disappeared a couple days ago.
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MAKNYC
  |     |   324 posts since 2015
If you have remaining questions that haven’t been answered I am willing to address directly. But I am done contributing to this site. Feel free to send direct message with modes of contact.
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Ltssharon
  |     |   472 posts since 2020
Aw, I have always depended on your input
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alan1
  |     |   880 posts since 2015
racecar -- rather than pay attention to comments from internet randos (some of which contain accurate information and some of which contain ludicrous statements), you might want to ask questions on Fidelity's reddit site or check out what Fidelity has already written when questions like yours arose.

For example, please check out the reply of "FidelityJames" on Fidelity's reddit site, in response to "Secondary CDs, so confused - Listed example with direct questions."

https://www.reddit.com/r/fidelityinvestments/comments/185hk4h/secondary_cds_so_confused_listed_examp...
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racecar
  |     |   628 posts since 2014
One last followup question if anyone knows:

If you buy a new brokered CD and need the funds early, you can try to sell it on the secondary CD market.

But if you buy a secondary CD and need the funds early, can you place that secondary CD you bought, for sale on the secondary market once again if you need the funds early?

(Any complications in trying to sell a secondary CD again, vs if it had just been a new brokered CD when you bought it?)
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alan1
  |     |   880 posts since 2015
If you buy a CD on the secondary market, you can subsequently try to sell it on the secondary market.
No additional complications relative to selling a CD that was purchased as a new issue,
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