The municipal bond market is becoming more dependent on individual investors, and individual investors deserve to have an accurate idea of the market value of their securities. The move toward better price information that's under way must not lag.
Prices of municipal bond mutual funds are readily available in the Wall Street Journal and the New York Times and other large-circulation newspapers, but not prices of municipal bonds themselves. There are simply too many issues, too many maturities, and too little trading in most of them, and these facts pose a problem.
Municipal bond funds are not in as great favor as they were in 1993, while investors are stepping up direct purchases of bonds. As a result, they need help.
In March, the Securities and Exchange Commission proposed that muni dealers disclose markups on so-called riskless transactions, mainly to give investors a more accurate picture of what their bonds were really worth, but that SEC proposition did nothing to help investors know the current value of their holdings. Dealers, of course, balked at disclosing their markups, and the idea was dropped last week.
Instead, more current municipal bond prices and yields are going to be disseminated, and investors will be somewhat better able to calculate current market value of their muni holdings. Over time, the system will be expanded and refined. Two sources of. municipal bond prices and yields will become available soon, and they will help. First, prices of more actively traded bonds will be published daily, beginning in January, under--a pilot program developed by the Municipal Securities Rulemaking Board. Second, the Public Securities Association will develop a generic scale or yield curve for insured triple-A municipal bonds, and these yields will be released daily.
It's too early to say how widely this information will be distributed. Newspapers are already filled with security listings, and they don't want more, so that will be a hard sell, especially if the new list of muni bonds turns out to variable in length and if specific bonds don't last long on the daily lists. Then, too, investors will find it difficult to correlate their own holdings with the PSA's genetic yield scale even if they keep precise records and know how to calculate bond prices. The exercise is complicated, and there are always exogenous factors.
Despite these obstacles, the new price moVeS will begin to help individuals understand the up-to-date Value of their holdings, and the municipal bond market will benefit. With better understanding will come a greater willingness to invest in munis, and then more issues will be quoted. The process, which should be fostered, will mushroom.