New Services Help Value Infrequently Traded Muni Bonds
Financial advisors have had scant tools for comparing values among infrequently traded municipal bonds, investments often favored by retirees looking for tax-free income. But now, the muni-bond market is pulling the curtain back on trading data so that pricing even rarely traded issues will be more precise and easier to do.
On June 9, the Municipal Securities Rulemaking Board introduced its Price Discovery Tool on its Electronic Municipal Market Access (EMMA) Web site at www.MSRB.org.
The tool represents a major milestone in MSRB’s “goal of a fair and efficient market through transparency,” says Justin Pica, director of product management. “The MSRB has data collected since the 1990s on all purchase and sale transactions in our database.”
The information, which is free to access, includes bond coupons, state of issue, tax status, and Fitch and S & P credit agency ratings. Users can “deselect” credit ratings or other criteria from the filter, says Pica. The system allows users to compare up to five securities based on prices and yields.
The data is intended to help verify or begin figuring a fair price, Pica says. “We’ve made it as easy and intuitive as possible. Investors enter the nine-digit Cusip number and find bonds with similar characteristics—maturity date, interest rate and other features.”
A similar but private offering comes from Boston-based Municipal Bond Information Services, which launched late last year. MBIS has 11 partners, including Triangle Park Capital Markets Data, whose founder, Ron Valinoti, also acts as operating manager of MBIS. The other 10 firms are brokers that specialize in selling munis among other dealers.
It is the market activity of the 11 entities that populates the MBIS database, which, Valinoti says, holds “two to three times the information you’d have available” if you used just MSRB. “We collect over 100,000 market observations a day,” which include bids and offers, in addition to actual trades. Some 70% of the data represents deals not consummated, a major difference between the two services, says Valinoti. As with the MSRB offering, the MBIS platform is not intended to produce a price, but rather provide insight on where bonds might trade.
“Many Cusip numbers don’t trade in a single day,” says Richard Ciccarone, president of Merritt Research Services LLC, in Hiawatha, Iowa. “Seeing the bids out there that nobody is taking might provide an indication of the relative spread differential, which you can use as a range or zone to trade in,” says Ciccarone, who notes that he is not familiar with the MBIS service. “That can be relevant in filling in the gaps of actual trades. But there’s nothing like a real trade to set the value of bond issues, most of which trade infrequently.”
He adds investors should always consult the “MSRB to maximize the potential of a fair market for municipal bonds.”