Best fixed-income brokers: top 4 brokers for bonds and debt trading

If you are looking to invest in bonds or debt securities, it may be very challenging to find a broker that provides such assets and is affordably priced.

So, let’s analyse the best fixed-income brokers in the UK, exploring their characteristics, cost structures, and the tools they offer to help you make an informed decision.

What is a fixed-income asset?

Fixed income assets serve as an instrument for debt issuance by an entity (for example, a government or a company). Through bonds, T-bills, and other assets, issuers obtain financing from investors who purchase these instruments. In other words, fixed income assets imply that the investor lends their money to an entity and, in return, receives regular interest, with the guarantee that the invested capital will be returned on a certain date.

Some of the main fixed-income instruments are:

• Bonds, T-bills, and other instruments issued by governments, municipalities, and other institutions
• Corporate bonds, junk bonds
• Certificate of deposit (CD)

Best fixed-income brokers

Next, we will explore the three best brokers to invest in fixed income.

What are the costs of investing in fixed-income assets?

The costs of investing in fixed-income assets depend on the broker you choose. For example, the costs vary between CFD providers (which may charge spreads and other costs) compared to brokers that allow direct purchase of fixed-income instruments.

Exante

Exante is a brokerage firm catering to professionals and provides a wide range of fixed-income financial products. The standard bond trading fees include a custody rate of 0.3% of the bond value (charged daily, calculated per year, and is also known as an overnight fee). Also, when buying bonds, you need to cover a fee of 0.09% of the deal value and the minimum fee is $50 per trade.

Interactive Brokers

Interactive Brokers is one of the best-rated brokers for international, intraday and low-margin operations. If you are interested in intraday trading, check out our round-up of the best brokers for intraday trading.

Interactive Brokers offers investors a wide variety of asset classes, including international fixed income, trading with assets in over 120 markets from +30 countries.

Check out our Interactive Brokers review for more information.

DEGIRO

DEGIRO is renowned as the largest broker for private investors. It offers an online investment platform for investors of all types, enabling its clients to invest globally at highly competitive rates. Essentially, you can buy bonds for only €2 commission and €1 handling fee. However, keep in mind that other fees may apply (such as currency conversion fee if your account is denominated in GBP instead of EUR).

IG

IG is one of the most experienced and highly regarded brokers in the world. This broker provides the opportunity to trade US and German bonds, among others, through derivatives (CFDs) or spread betting:

• Spreads start at 1 pip for spread betting or CFDs
• From £3 commission in the share-dealing account (for bond ETFs listed on exchanges only)

What requirements must a fixed-income broker meet?

Selecting a reliable broker is crucial for any type of investment, as it enables us to safeguard our assets and potentially grow our wealth through sound investment decisions. Therefore, it is important to consider a set of requirements that a broker must fulfil, which we will now explore.

Regulation

Regulation is the main requirement that we should prioritise. Above any features or platform ease-of-use, the security of the funds we are going to invest is paramount. Therefore, the broker should be regulated by reputable authorities. In the UK, the Financial Conduct Authority (FCA) is the regulatory watchdog.

Bonds quality

It is crucial for the broker to provide high-quality bonds, such as those issued by governments or companies with AAA or AA credit ratings (for example, US or German bonds), as these bonds offer a greater assurance of interest payment and capital repayment.

Among the countries with maximum credit quality or AAA, we find:

• United Kingdom
• Germany
• USA
• Denmark
• Luxembourg
• Netherlands
• New Zealand
• Norway

Therefore, the bonds issued by these countries are preferable. Emerging markets bonds come with much higher risks (but also the potential for higher gains).

Low costs

Another crucial factor to consider is the cost, as a broker that offers low costs can significantly enhance the long-term profitability of the investment. In fact, if the commissions were excessively high, it could paradoxically result in a substantial or total loss of the gains obtained through the bond coupon, considering that high-quality bonds tend to offer lower coupon rates.

Investment platform

It is also essential, particularly for less experienced investors, that the investment platform is user-friendly and provides useful tools for analysing and tracking bonds.

Support and customer service

Quality support and customer service are important factors to consider, especially because investing in bonds can be difficult and unknown for many investors; a broker that provides advice and support to its clients can avoid making mistakes and thus save possible losses.

What is better to invest in: fixed income or stocks?

As depicted in the image, and for the first time in quite a while, there is a highly significant factor for investors with substantial wealth and/or long-term investment horizons: the yield achieved by the US bond (in this instance, the one-year bond, although the same principle applies to other bonds) is considerably higher than the dividend offered by the S&P 500.

In simpler terms, for investors seeking returns through long-term investments, the current bond yields have become more appealing than the stock market. This may lead them to consider reallocating their invested assets into bonds.

This situation is noteworthy as it hasn’t occurred for many years due to artificially low interest rates, particularly in Europe where rates have been close to zero or even zero. Consequently, it will be the large portfolios that benefit the most from these passive income sources (bond coupons and/or stock dividends), which can influence the decisions of these influential investors who have a significant impact on the market.

This is why stock markets tend to decline when interest rates rise, as financing becomes more expensive while saving becomes more attractive.

However, when we observe the inverted shape of the well-known yield curve, we notice that the most attractive bonds are those with shorter terms. Therefore, investors remain cautious about incorporating longer-term bonds into their portfolios.

This caution is likely due to the hesitation of conservative investors in lending money to governments with increasingly higher levels of debt over the long term. Nevertheless, the fixed-income market presents opportunities with coupons higher than 4% in the US two-year bond. Undoubtedly, this is an opportunity that hasn’t been seen in many years.

To create a well-balanced investment portfolio or trade other stocks, check out the following articles:

• Best brokers to trade CFDs
• Best brokers for options
• Best forex brokers
• Best ETF brokers
• Best commission-free brokers
• Best crypto brokers

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