Bond Buyer Indexes and Market Indicators
Now that you can analyze, price, and calculate yields on municipal bonds, let's look at the market-level indicators that track the overall muni market. The Bond Buyer publishes several indexes and supply/demand metrics that appear frequently on the exam.
The Three Bond Buyer Indexes
| Index | Composition | Quoted As |
|---|---|---|
| 11-Bond GO Index | 11 select bonds from the 20-Bond Index; average rating ~Aa1/AA+ | Yield |
| 20-Bond GO Index | 20 general obligation (GO) bonds with 20-year maturities | Yield |
| Municipal Bond Index (40-Bond) | 40 long-term municipal bonds (mix of GO and revenue) | Price |
Key relationships:
- The 11-Bond Index is a subset of the 20-Bond Index, consisting of the highest-quality bonds
- Because the 11-Bond Index contains higher-quality bonds, its yield is lower than the 20-Bond Index (lower risk = lower yield)
- The 20-Bond and 11-Bond indexes are expressed as yields
- The 40-Bond (Municipal Bond Index) is the only one expressed as a dollar price
- All three are published weekly by The Bond Buyer
Exam Tip: Gotchas
- The 40-Bond Index is quoted as a PRICE; the 11-Bond and 20-Bond are quoted as YIELDS. The exam may test which index is price-based vs. yield-based.
- The 11-Bond Index has LOWER yields than the 20-Bond. Higher quality = lower yield. The 11-Bond is a subset of the highest-quality bonds from the 20-Bond Index.
Visible Supply
The 30-day visible supply tracks the total dollar volume of new municipal bond issues (with maturities of 13 months or more) expected to reach the market in the next 30 days.
- Published daily by The Bond Buyer
- A rising visible supply → more bonds coming to market → potential downward pressure on prices (upward on yields)
- A falling visible supply → fewer new issues → potential upward pressure on prices (downward on yields)
Think of it this way: More supply with the same demand pushes prices down.
Exam Tip: Gotchas
- Visible supply is published DAILY (not weekly like the indexes and placement ratio).
- Rising visible supply is BEARISH for bond prices. More bonds hitting the market = downward price pressure.
Placement Ratio (Acceptance Ratio)
The placement ratio measures how successfully new muni issues are being absorbed by investors.
Formula: Placement ratio = dollar amount of new bonds sold / dollar amount of new bonds offered
- Published weekly by The Bond Buyer
| Ratio | Market Signal |
|---|---|
| Above 90% | Strong demand, favorable market conditions |
| 80-90% | Neutral conditions, some price concessions needed |
| Below 70% | Weak demand, unfavorable pricing |
Think of it this way: The placement ratio shows how hungry investors are for new muni bonds. Above 90% means buyers are snapping them up; below 70% means deals are going unsold.
How These Indicators Work Together
- Visible supply: High = bearish (more supply, lower prices); Low = bullish (less supply, higher prices)
- Placement ratio: High = bullish (strong demand); Low = bearish (weak demand)
The two indicators often move together as a market signal:
- A high visible supply combined with a low placement ratio signals a tough market for new issuers
- A low visible supply combined with a high placement ratio signals strong market conditions
Exam Tip: Gotchas
- High visible supply + low placement ratio = bearish. Lots of new bonds and few buyers is the worst combination for issuers.
- Visible supply and placement ratio move in opposite directions in terms of market sentiment. High visible supply is bearish, but a high placement ratio is bullish.