A front page article in the Wall Street Journal caught our eye last week as it highlighted the challenges retail investors face when attempting to trade municipal bonds. The over-the-counter nature of the bond market creates liquidity issues for investors who trade small sizes and have limited visibility into recent prices or the commissions brokers are charging. According to the article: “Individual investors trading $100,000 in bonds of a municipality, such as Washington state, in December paid brokers an average ‘spread’ of 1.73%, or $1,730. That compares with 0.87%, or $870, paid on a comparable corporate bond, such as one issued by General Electric Capital Corp., the data show.” Many times the markups we pay are less than 0.05% (or 50 cents per $1,000 bond face value), as we have the relationships and technology that give us the ability to remove the middle men and reduce costs. We have better access to information such as trade history and have more transparency than individual investors. We also utilize a large pool of broker/dealers to get the best price, rather than just one or two, as is common for individuals with a retail broker. In addition, we tend to buy and sell in bulk to further reduce transaction costs and, for individual accounts, we buy inexpensive matching odd lot positions. While the illiquid nature of the municipal market can be problematic for individual investors, our focus on maintaining low transaction costs allows us to turn the challenges into advantages.