Muni bonds that mature in less than a year are in high demand by the money market industry. What this means is that investors may be able to sell their bonds with less than 12 months maturity for a higher value than if they waited till the maturity date.
It is an interesting feature of the US fixed income markets that, when the final annual coupon of a bond is paid and there is less than one year remaining until it’s maturity, the instrument is treated as, and trades like, money market paper. Money market products are typically cash or cash equivalents such as Treasury Bills, CD’s and Commercial Paper that are issued without coupons and with one year or less to maturity.
This might seem like a market technicality, but it has some importance for participants. On the one hand, investors will need to expect the final income payment at the maturity date and potentially arrange for re-investment of the proceeds, all of which will require some pre-planning. More compellingly, though, this peculiar feature of the markets offers trade opportunities for the bondholders.
These opportunities derive from the fact that, once treated as a money market instrument, the bond becomes eligible to be included in a whole new sector of the mutual fund market. Money Market Funds are a significant and popular mutual fund segment representing $4.57 trn AUM and offer a liquid and low risk vehicle for investors, both institutional and retail. Once a bond is classified as money market paper, it can be added to these portfolios, therefore opening up a whole new set of potential investors and making such bonds more attractive investment options.
Investors can exploit these opportunities by identifying and buying municipal bonds approaching their final coupon date with a view to making them available for sale to Money Market Funds when they have less than one year to maturity. BondView can assist in this process. Our comprehensive database of municipal bonds can be screened to identify issues that are approaching their one year to maturity date. For the resulting list of bonds, BondView also provides extensive data on their trading activity, whether they are currently held in funds and other key market information like credit and liquidity measures allowing investors and traders to select the most promising candidates.
This is just one of the many ways that BondView can help bond market participants to access trading opportunities. Use BondView’s Bond Screener to find Muni Bonds Maturing Within the Year