Evaluation of Municipal Bonds
Gerard Brennan Senior Municipal Evaluator Interactive Data Pricing and Reference Data, Inc.
A municipal bond evaluation is an independent opinion about the value of a bond. At Interactive Data Pricing and Reference Data, Inc. (Interactive Data), for example, an evaluation represents the firm’s good faith opinion as to what a buyer in the marketplace would pay for the security in a current sale. This chapter provides an overview of the factors considered by this pricing service in the evaluation of municipal bonds.
THE NEED FOR EVALUATIONS
Municipal bond evaluations are required by a variety of entities as an important part of the operations and oversight of investment portfolios. Mutual funds use them in their daily calculation of their net asset values. Institutions use them to value holdings, managed portfolios, and other investment products. The availability of third-party bond evaluations helps ensure that portfolios are valued objectively and accurately.
A bond evaluation is not necessary when a bond is first issued. At that point, the underwriters handle the pricing of bonds along a scale.640
Municipal bonds are typically issued in series, meaning that a set of bonds is issued with different maturity dates. The underwriters price the bonds in the series based on factors such as orders for the securities, levels similar bonds have attained in the secondary market, the current interest rate environment, credit rating, and historical ...