Information on the Accessibility, Methodology and Utility of Indices, Yield Curves and Other Benchmarks
Summary
SIFMA sent comments to the Municipal Securities Rulemaking Board on MSRB Notice 2018-20, “Request for Information on the Accessibility, Methodology and Utility of Indices, Yield Curves and Other Benchmarks.” Indexes and benchmarks are widely used in the municipal market to gauge pricing on new issues and secondary market trades, as a basis for adjustable-rate notes, swaps, and other variable-rate products, as a metric for evaluating portfolio manager performance, and other uses. It is appropriate for the MSRB to solicit the views of market participants on how indexes are used.
Excerpt
Mr. Ronald W. Smith, Corporate Secretary
Municipal Securities Rulemaking Board
1300 I St NW Suite 1000
Washington DC 20005
Re: MSRB Notice 2018-20, Request for Information on the Accessibility, Methodology and Utility of Indices, Yield Curves and Other Benchmarks
Dear Mr. Smith,
SIFMA1 is happy to offer comments on Municipal Securities Rulemaking Board (MSRB) Notice 2018-20, “Request for Information on the Accessibility, Methodology and Utility of Indices, Yield Curves and Other Benchmarks.” Indexes and benchmarks are widely used in the municipal market to gauge pricing on new issues and secondary market trades, as a basis for adjustable-rate notes, swaps, and other variable-rate products, as a metric for evaluating portfolio manager performance, and other uses. It is appropriate for the MSRB to solicit the views of market participants on how indexes are used, and we appreciate the opportunity to comment.
1. Introduction: pricing credit products Many fixed income financial products entail credit risk, including municipal securities, corporate bonds, certain securitization products and others. In credit markets, investments with credit risk are generally priced at a yield premium to a risk-free rate—the yield curve for US Treasury securities—with similar durations. Price movements of various fixed income products tend to be highly correlated. When Treasury yields rise, the yields on credit products tend to rise as well. This correlation makes it very efficient to price credit products against a risk-free rate. This allows market participants to compare easily the yield spreads of various investments to a risk-free rate and to each other.