Munis Flashcards
Muni Notes
Short term financing Ratings: S&P: SP1, SP2, SP3 (speculative grade) Moodys: MIG 1, MIG 2, MIG 3, SG (speculative grade) Managing Cash flows: TAN (Tax Anticipation Note) RAN (Revenue Anticipation Note) BAN (Bond Anticipation Note) GAN (Grant Anticipation Note)
Variable Rate Demand Oblications
Variable rate of interest adjusted at specified intervals. Holders can redeem for par plus accrued at any time that rates are reset.
Auction Rate Securities
Long term bonds (muni or corp) with variable i that is periodically set thru Dutch Auction. Sets lowest i at which securities offered for sale will clear the market (“net clearing rate”). I reset range from 7, 28, 35 days. Investor must decide to keep sell before auction. If Dutch doesn’t clear market, investor must hold security.
Taxable Equivalent Yield Formula
Tax Free Yield / (100% - Tax Bracket %)
Net Yield Formula
Taxable Yield * (100% - Tax Bracket %)
Muni OIDs
Basis is accreted at rate that brings up to par at maturity. If held to maturity: no cap gain/loss. If sold prior: gain / loss on ADJUSTED basis, gain on sale is reported at accreted amt. Remember to accrete/amortize from fv to par at constant yearly amt.
100m
Means $1,000
EMMA
Electronic Municipal Market Access. Equivalent of EDGAR.
Muni Notice of Sale: Negotiated Sale
Issuer appoints underwriter. Both issuer and underwriter negotiate terms of deal. Usually for revenue bonds. Bid is submitted in terms of yield.
Muni Notice of Sale: Competitive Sale
Notice published in Bond Buyer. Issuer invites underwriters to submit sealed bids. Usually for GO bonds.
Eastern Account
Undivided syndicate. Each member takes same percentage as original allocation of unsold bonds.
Western Account.
Divided syndicate. (Wild West) Members only responsible for individual allocation.
Components of spread in a syndicate for munis
Manager fee: 1/4 point per bond. Syndicate member (additional takedown): 3/4 point per bond sold. Selling group concession: 1/2 point for each bond sold (then syndicate member becomes 1/4pt). Total takedown: 3/4 point
Bond Buyer
New Issue info, quotes avg YTM. 3 indexes:
20 Bond: - 20 GOs w 20 yr maturities
- avg rating AA or Aa2
11 Bond: - 11 of the above 20
- avg rating of AA+ or AA1
25 Revenue: - 25 revenues w 30 yr maturities
- Avg rating A+ or A1
Bond Buyer: Visible Supply
Total par value of negotiated and competitive issues expected to reach mkt within next 30 days
Compiled DAILY
Bond Buyer: Placement Ratio
Par value sold (placed) vs. total par value available for sale
Compiled WEEKLY
MSRB
No enforcement power, enforced by agencies but NOT exchanges (bc they dont deal munis)
B/D who has board seat on issuer’s board
Can trade issuer’s bond for/with customer but must:
Disclose relationship at least orally before trade
Disclose relationship in writing at or prior to settlement
If for discretionary account, obtain customers specific WRITTEN permission
Muni Principal
Must review and approve in writing:
-all new accounts
-all muni transactions
-all muni correspondence
-summaries/abstracts of Official Statements
-all complaints (FINRA: hold 4 yrs, MSRB: 6 yrs)
+complaints must be written and signed by customer, investor brochure delivered to customer
all other record keeping: 3 yrs
Political contributions by muni fin professionals
Only $250 per election per candidate and only for candidates for whom he may vote
If violated, 2 yr ban on underwriting business w issuer (cmpetitive deals not prohibited)
bank-qualified municipal bonds
Bank-qualified bonds are issued by small municipalities and, to qualify, a municipality may only issue up to $10,000,000 annually. This is done to encourage commercial banks to invest in locally issued municipal securities. Commercial banks that purchase this type of security are permitted to deduct 80% of the interest cost paid to depositors on the funds used to purchase the bonds.
Bond Buyer Muni Index
The Bond Buyer Municipal Bond Index represents the average of the prices of 40 long-term municipal bonds adjusted to a yield of 6%.
