Bond Buyer 20
Contents
Demystifying Bond Buyer 20: Understanding Municipal Bond Trends
Understanding Bond Buyer 20
The Bond Buyer 20, also known as the GO 20 Index or the 20 Bond Index, serves as a barometer for municipal bond trends, specifically tracking the average yields of 20 general obligation municipal bonds maturing in 20 years. These bonds typically carry credit ratings of grade Aa2 by Moody's or grade AA by Standard & Poor’s. Rather than relying on actual prices or yields, the Bond Buyer 20 derives its value from a survey of municipal bond traders, making it an essential tool for gauging the prevailing interest rates for general obligation bonds.
General Obligation (GO) Bonds Definition
General obligation (GO) bonds, which form the basis of the Bond Buyer 20 index, are municipal bonds backed by the full faith and credit of state or local governments. This means that the government entity issuing the bonds pledges its taxing power to repay bondholders, ensuring a relatively secure investment. Consequently, the Bond Buyer 20 index provides valuable insights into the interest rate trends for these bonds, aiding state and local governments in determining the maximum interest rates they can offer on new bond issues.
Utilizing Bond Buyer 20 for Financial Decision Making
State and local governments often reference the Bond Buyer 20 index to estimate the maximum interest rate they can afford to offer on new bond issuances. For instance, Florida statutes stipulate that bonds may bear interest at a rate not exceeding an average net interest cost rate derived from The Bond Buyer “20 Bond Index” published preceding the first day of the calendar month in which the bonds are sold. By leveraging this index, governments can make informed decisions regarding their borrowing costs and financial obligations.
Exploring Other Bond Indices
In addition to the Bond Buyer 20 index, The Bond Buyer financial publication offers various other bond indices, including the Bond Buyer 11 Index, the Revenue Bond Index (RBI), the SIFMA index, and the Municipal Market Data (MMD) Curve. Each index provides unique insights into different segments of the municipal bond market, allowing investors and policymakers to monitor trends and make data-driven decisions.