Municipal Bond Markets: ‘A Dangerous Place to Invest’
Worst-Spread Study Shows Terrible Conditions for Investors, Demonstrates Need for Formal Muni Market
SAN FRANCISCO – May 9, 2011 – A MuniMarket.com study of the worst municipal bond spreads for the second half of 2010 (www.MuniMarket.com/WorstSpreads2ndH2010.aspx) clearly proves that the muni markets are a dangerous place to invest, according to the site’s founder, Kevin Olson. “Spreads are terrible – 10, 20-point spreads are common – and this is just looking at same-day cross trades,” Olson said. “The muni markets have never been a fair marketplace but current conditions for investors are as bad as they’ve ever been and getting worse.”
Investors are at a severe disadvantage because most underwriters of municipal new issues do not provide any liquidity or bids, Olson explained. Municipal bond investors wanting or needing to sell are completely at the mercy of broker/dealers with no interest in providing a bid. “They go out and find another broker/dealer to bid on your bond, and that broker/dealer may in turn go to a third, and so on. If you were to purchase $100,000 of a bond in the morning, later that same day your investment could be worth only $75,000 or less,” Olson said.
The MuniMarket.com study lists the 100 worst bid-offer, offer-side and bid-side spreads for muni market trades between July 1 and December 31, 2010. Olson said that his analysis provides a much more accurate overview of the muni market climate than the recent Municipal Securities Rulemaking Board (MSRB) trade-data study. “The MSRB only concluded that there were more trades in small amounts, in others words, more individual investors,” Olson said. “If the MSRB cared to really examine market conditions it would have provided worst-spread data.”
“This worst-spread data only strengthens my argument for the creation of a formal market for municipal bond trades,” Olson said. “A market would bring efficiency and fairness to the muni markets, benefitting both issuers and investors.”
MuniMarket.com, the first exchange platform for municipal market bid-wanteds, provides a free, easy-to-use, online solution for bondholders needing a bid-connect with investors wanting to buy. Olson, a well-known investor advocate and public finance watchdog, also operates MuniAdvocate.com, a Web site devoted to improving municipal public finance and helping municipal market investors. For more information, contact Olson at MuniMarket@live.com or MuniAdvocate@live.com.
MuniMarket.com Seeks SEC Ruling, State Treasurers' Input on Proposed Exchange for Munis
SAN FRANCISCO, March 23, 2011 /PRNewswire/ -- Kevin Olson, well-known public finance watchdog, investor advocate and founder of MuniMarket.com, is calling for fundamental reform of the muni markets through the creation of a muni market exchange.
In an e-mail to the Securities and Exchange Commission (SEC) and the National Association of State Treasurers (NAST), Olson asked SEC Commissioner Elisse Walter if muni issuers, such as states, can list on an exchange or exchange platform – "similar to how corporations list their stock" – following initial issuance of bonds. Olson also asked that state treasurers help in securing fair and reasonable muni markets by involving themselves in the development of a formal exchange. Walter has replied and the question is now being considered by relevant SEC staff. NAST is also considering the idea, and is consulting its members.
"Allowing municipalities to list bonds after 'new issue' and/or requiring all secondary bid-side activity to take place on an exchange would revolutionize the muni markets," Olson said. "It is an important first step to bring about much needed reform. MuniMarket.com could be that centralized muni market exchange if state treasurers step up." If there is no interest, MuniMarket.com will continue to operate as an exchange platform, Olson added.
According to Olson, the creation of a formal exchange would open up the muni markets, allowing buyers and sellers to get the best prices. Wall Street brokerages want the current system of "captive" market situations where they control the bidding, the spreads and the profit.
"No one has worked muni trade data or studied it harder than I have. I do not believe that oversight, regulatory, rulemaking or enforcement entities have really looked at the trade data, because they do not seem to recognize just how bad the muni markets really are," Olson said. "Transparency is not enough – greater transparency only shows that things are even worse than they appear. What we need is structural reform. What we need is a muni market exchange."
In addition to MuniMarket.com, Olson also operates MuniAdvocate.com, a Web site devoted to improving public finance and helping muni investors. Contact Olson at MuniMarket@live.com or MuniAdvocate@live.com.
MuniMarket.com Provides Free Investor-to-Investor Exchange Platform for Municipal Bond Sellers, Buyers
SAN FRANCISCO, Feb. 22, 2011 /PRNewswire/ -- MuniMarket.com offers needed assistance to investors trying to successfully navigate a municipal bond market severely impacted by the fiscal crisis affecting state and local governments throughout the United States. The site, the first exchange platform for municipal market bid-wanteds, provides a free, easy-to-use, online solution for bondholders needing a bid-connect with investors wanting to bid.
MuniMarket.com founder Kevin Olson created the site as a public service to allow investors to get the best price by avoiding broker, dealer and trader spreads. Olson, a well-known investor advocate and public-finance watchdog, who pioneered fixed-income price transparency over a decade ago, refers to the site as "eBay for the muni markets." The Securities and Exchange Commission (SEC) has taken a "no-action" position on MuniMarket.com.
With so many investors looking to sell their municipal bonds under extraordinarily difficult market conditions, the bid-side of the equation is particularly bad for sellers. "One of the fundamental problems with the muni markets is that the bid-side is captive and closed," Olson said. "Your bonds are held at a dealer securities account. If you want or need to sell, you get one bid from your broker. That bid may be your broker's bid, or your broker's trading desk could have gone out and gotten another bid and kept a nice spread for itself. There may be a few layers of bids and spreads before a final buyer is found. The result is neither seller nor buyer gets the best prices. Unfortunately this is common practice."
To use MuniMarket.com, investors simply post the municipal bonds they want to sell and their contact information on the form provided by the site. At the end of the bidding period, the investor (or his broker, where bonds are held in account) and the winning bidder's broker will write the trade tickets.
Olson has also launched a public finance watchdog and investor advocacy Web site, MuniAdvocate.com, with the goal of improving municipal public finance and helping municipal market investors.
For more information about MuniMarket.com or MuniAdvocate.com, contact Olson at MuniMarket@live.com or MuniAdvocate@live.com.