Unlocking the Bond Market: Ultra-Low $100 Fractional Bond Investments

The fractionalization of bonds via APIs and via Tokenization is taking off. The global bond market is immense, with the total volume of sovereign and corporate bond debt reaching nearly $100 trillion by the end of 2023, similar in size to global GDP. Government bonds account for a significant portion, with OECD countries’ government bond debt projected to reach $56 trillion in 2024. Corporate bonds also play a crucial role, with outstanding corporate bond debt increasing from $21 trillion in 2008 to $34 trillion by the end of 2023.

The 40% part of the infamous 60/40 portfolio has clearly been a Fintech laggard. The 60% has been disrupted by 1,000 cuts. From stock ETFs with zero fees, to fractional shares, to automating change and investing into stocks and beyond.

Traditionally fixed income has been accessed by retail through ETFs or funds with average charges ranging easily from 1%-2%. While Money Market Funds (MMFs) have attracted major inflows as interest rates rose, access to individual bonds both Government and corporate has remained limited to retail as they trade in large denominations ($100k-$200k).

Financial services providers are starting to increasingly offer access to lower denominations of bonds in both traditional rails and tokenized. I mentioned this trend earlier this month in my takeaways from Money20/20, as I had the opportunity to talk to DriveWealth. What caught my attention this week was that although DriveWealth is behind Revolut`s shares offering, they were not chosen for the new Revolut fractional bond offering.

GTN and Revolut partner to unlock the bond market in the EEA

GTN is a global fintech headquartered at the Dubai International Financial Centre (DIFC), with regulated subsidiaries in Dubai, Singapore, South Africa, and the US. GTN focuses on democratizing bond investing by providing access to government and corporate bonds through its advanced API technology.

They were chosen to enable Revolut to offer bond trading to customers in the European Economic Area (EEA with investments starting as low as €100! This is ultra-low. Most other fractional bond providers offer $1,000 minimum.

Revolut`s approach reminds me of their crypto approach. Let’s offer early access and acquire customers and/or cross-sell. Early access means very little competition and therefore pricing power. EToro, one the largest retail digital investing Fintechs, doesn’t offer access to individual bonds.

Revolut`s offering:

• Minimum Investment: The minimum amount to start investing in bonds is €100 or $100.
• Fees: There is a fixed fee of 0.25% per trade, with a minimum fee of €1 or $1. Additional fees may apply.

Public.com has also recently launched fractional bond trading starting with 100 bonds (both US Treasuries, municipals, and corporate bonds) and $100 minimum. Their competitor, Robinhood also doesn’t offer access to individual bonds.

Public.com includes an AI-powered bond search capability with a screener and detailed bond information pages that provide key financial data for corporate bonds.

Public.com Introduces Fractional Bond Trading

Fees for US Treasuries are 25bps, for Short-term (>3yrs) corporate bonds 35 bos, and 50bps for any longer corporates. Plus a trading activity fee (TAF) of $0.00105 per bond for bond sales, rounded up to the nearest penny. These fees are designed to cover the expenses associated with bond trading and are capped at $1.05 per trade.

The other Fintech players involved in fractional bond trading for retail, are:

DriveWealth is a US-based global fintech company known for its pioneering work in fractional stock investing which has recently expanded its offerings to include fractional bonds, providing access to both US Treasury securities and corporate bonds via API.

WiseAlpha, based in London is another fintech company democratizing access to the corporate bond market through its fractional bond technology. However, their technology is geared to financial advisors, banks and wealth advisors rather than directly to retail and DIY investors.

Velexa is an interesting fintech company headquartered in London, with additional hubs in Sofia, Bulgaria, and Riga, Latvia, as well as regional presence in Spain, UAE, Chile, Mexico, Indonesia, and Singapore.

Velexa leverages fractional bonds to promote financial inclusion by offering retail investors in emerging markets, including Africa and Latin America, the opportunity to participate in the bond market with minimal initial investments.

There are even more players Tokenizing bonds, for example, BondbloX Bond Exchange (BBX) licensed by MAS (for the Fintech oldtimers, this is BondEvalue). In this article, I am only looking into players in the fractional bond space built on the traditional rails.

Conclusion

Making Wealth Digital continues! Alternatives, Private markets, and Bonds are where there is more to be done.

Revolut and Public.com are early in offering fractional bond investing to retail (there are more offerings for `qualified investors`) with ultra-low minimums of 100!

The question now becomes who will launch an AI for me and you that is independent of any investment product provider, to coach us through all these offerings and optimize our choices in our best interest. The tech is there. The only question is who can convince us that they are acting in our interest and are compliant.