MSRB Municipal Bonds Report

Our Americas Municipals team publishes coverage of higher-yield and unrated municipal borrowers, as well as broader trends in the municipal bonds market and litigation that could impact the credit quality of state and local government obligors, enterprises and nonprofit corporations. Coverage focuses on source-driven reporting and regulatory disclosures, as well as analysis of legal documents and financial statements.

This week, in an Americas Municipals Industry Update the team looks at a study from the Municipal Securities Rulemaking Board (MSRB) on the impact of the COVID-19 crisis on competitive and negotiated offerings in the municipal bonds market.

“The total number of bids on competitive deals dropped significantly from March 2020 through May 2020, with winning spreads much wider when compared with competitive bids in the “Non-Covid Period in 2020,” according to a study released today by the Municipal Securities and Rulemaking Board, or MSRB.

This negatively affects pricing for borrowers that choose the competitive bid because the cost of capital is negatively correlated to the number of competitive bids. In other words, the more bids, the tighter the spreads, according to the report. In the secondary market, negotiated deals outperform competitive deals.

“In addition, when comparing the initial reoffering yield with the weighted-average secondary market traded yield in the first 30 days, the median trade spread was marginally negative for competitive offerings, but was substantially positive for negotiated offerings, suggesting that negotiated offerings tend to trade at a higher level in the secondary market,” according to the study.”

MSRB: Primary Offerings of Municipal Securities: Impact of COVID-19 Crisis on Competitive and Negotiated Offerings

Access more of our Americas Municipals coverage, request a trial here.