When evaluating trading activity, a substantial portion of the most actively traded municipal bonds is linked to obligated entities with the highest levels of outstanding debt. While increased debt loads typically pose a credit risk, it’s worth noting that they can also carry a beneficial aspect in terms of trading and pricing dynamics.
This is attributable to the heightened likelihood that the market will experience improved price transparency concerning bonds backed by the same credit security. Since all trading activity must be reported promptly to the public through the MSRB EMMA database, traders and investors benefit when trades on the same name and security occur more often. Trading levels are impacted by market and structural factors, yet for many investors, the initial starting point lies in credit quality assessment. Larger issuers offer a pricing transparency advantage compared to the tens of thousands of smaller-sized bond issuers in the municipal market that trade infrequently.
In this report, Merritt data in CreditScope™ was used to identify the seven largest same credit securities or obligors across fourteen municipal credit sectors.
