Municipal Bond Quotes

Municipal Bond Quotes

Municipal bonds, which are issued by state, city, and local governments, have maturities that range from 10 to 30 years. Because of the issuer’s legal right to collect taxes, municipal bonds are considered safer than corporate bonds, but not as safe as Treasury issues. They are sold at their par values (usually $1,000) and bear a fixed interest, or coupon, rate stated as a percentage of par. When resold in the secondary market, the price of a municipal bond is quoted as a percentage of its par value. This quoted price is made up of a number of components, including the fixed interest rate stated on the bond, current interest rates at the time of sale, and the time remaining until maturity.

Selling munis on the secondar market

Once these components are factored in, the bond is priced to make it competitive with other issues, so it may sell in the secondary market for more than its par value or less. Either way, its price will be quoted in eighths. For example, let’s assume a municipal bond was originally issued with a par value of $1,000 and a 5 percent coupon rate. The original buyer then sells it on the secondary market. However, at the time of sale, new bonds are being issued at 6 percent. In order to get someone to buy this bond, the seller will have to discount its price so that the buyer can earn a yield equivalent to 6 percent. Remember, too, that the time until maturity is a factor.

After allowing for these variables, let’s further assume that the price is shown as 91 3/8. This means that it is priced at $913.75. We know this because the "91" represents 91 points, and each point is worth $10. So, 91 x $10 = $910. The "3/8" represents 3/8 of a point ($10), or $3.75. Add them together and you get $913.75.

Remembering this simple formula will help you decode the municipal bond quotations you see in the newspapers.