Investing in the High Yield Municipal Market: How to Profit from the Current Municipal Credit Crisis and Earn Attractive Tax-Exempt Interest Income

Executing Trades in the Secondary Market

If you are a large market player, you may be able to more easily ascertain who the main secondary market players are in a high yield sector in which you want to invest. In that case, and if you are trading larger blocks of bonds, it will probably make sense for you to talk to several dealers and buy and sell directly through them. The Bloomberg professional system is a good source for bond information if you have access to the system. If you are buying a smaller amount of bonds, you may be trading through a broker that could have offerings listed on their own electronic platform. If not, there are several electronic exchanges you might be able to access. Some of these are The Muni Center, Bond Desk, Knight Bond Point, Tradeweb Retail, and Bonds.com. Never, ever pay the offering price on an electronic platform (investors who may be used to executing stock trades electronically should take note). You may be able to negotiate a better price by showing a dealer a bid at a lower price (higher yield). This may be especially true if the bond in question has been offered for a long time (i.e., it is a “stale offering”), and the dealer firm is motivated to get out of a position they have been holding for a while. Remember to do your homework on a bond and look at its trade history first before showing a bid! A bid obligates you to buy bonds at that price.

Sometimes dealers or clients ask for bids on a bond, a process that is referred to as a “bid-wanted” ...