Vanguard bond fund trading data, FY 2019

Vanguard bond index funds and Vanguard’s tax-exempt bond funds engage in cross trading of bond securities, and in the case of bond index funds, in-kind purchases and redemptions. Both of these trading mechanisms serve to reduce trading costs. [1]

Bond index funds

While the advent of electronic trading has reduced the costs of trading corporate bonds for institutional investors, a 2015 study of corporate bond trading costs finds that “average customer transaction costs are 85 bp for retail-size trades and 52 bp for larger trades. Estimated total transaction costs for the year ended March 2015 are above $26 billion.” Since cross trades and in-kind transactions do not require market trades, these trades serve to cut transaction costs.

Bond Index fund cross trades (in ‘000’s)

FundPurchases Cross Pct. Sales CrossPct.
ST bond27,628,8018,410,03830.44%31,955,223533,4681.67%
IT bond21,153,432589,3652.79%19,402,8989,696,36249.97%
LT bond6,330,04966,2191.05%6,740,9781,483,83622.01%
Total bond103,379,11800.00%70,690,73500.00%
ST Trsy9,453,893,1,258,83613.32%6,250,10700.00%
IT Trsy5,017,17122,0900.44%2,237,5721,258,83656.26%
LT Trsy2,027,83400.00%874,78400.00%
ST Corp21,538,9475,114,11723.74%18,932,370641,1593.39%
IT Corp21,634,8501,342,1586.20%18,941,7875,362,33528.31%
LT Corp2,925,886182,5726.24%2,945,631791,71926.88%

Bond index in-kind transactions (in ‘000’s)

FundPurchases In-KindPct.Sales In-kindPct.
ST bond 27,628,8015,290,75719.15%31,955,22310,390,92332.52%
IT bond21,153,4323,087,05914.59%19,402,8983,126,37816.11%
LT bond6,330,0492,397,84437.88%6,740,97801,383,73720.53%
Total Bond103,379,1189,805,0639.48%70,690,735933,5131.32%
ST Trsy9,453,8934,562,48548.26%6,250,1072,440,09039.04%
IT Trsy5,017,1711,945,73838.78%2,237,572580,10725.93%
LT Trsy2,027,8341,063,80652.46%874,784509,03358.19%
ST Corp21,538,9476,905,83932.06%18,932,3704,818,46925.45%
IT Corp21,634,8508,097,170,37.43%18,941,7875,495,77429.01%
LT Corp2,925,8861,814,45462.01%2,945,631977,12933.17%

Tax-exempt bond funds

A 2016 study of municipal bond transaction costs finds that for one million dollar and above transactions, dealer markups make for a 21.48 basis point transaction cost. Costs rise with smaller purchases. Purchases from 0 to 25,000 incur a 214.8 basis point dealer markup.

Tax exempt bond fund cross sales (in ‘000’s)

FundPurchases Cross Pct. Sales Cross Pct .
ST muni4,223,5442,245,93753.18%3,932,7231,561,24839.70%
Ltd muni7,353,4311,298,73817.66%5,100,6132,394,50746.95%
IT muni13,671,9663,441,09525.17%4,926,0371,872,44338.01%
LT muni3,184,33200.00%1,974,51400.00%
Hy muni4,306,70100.00%2,166,08800.00%


[1] Data derived from annual reports on EDGAR. Calculations available on this google spreadsheet.

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