JOURNAL ARTICLE

The Intrigue of Municipal Debt Analytics: The Case of Tax-Exempt Tender/Refunding Transactions.

  • Published In: Journal of Fixed Income, 2025, v. 35, n. 1. P. 40 1 of 3

  • Database: Business Source Ultimate 2 of 3

  • Authored By: Kalotay, Andrew; Luby, Martin J. 3 of 3

Abstract

The institutional municipal market is dominated by 5% bonds callable at par in Year 10. The above-market coupon guarantees that independent of their nominal maturity the bonds will be refunded by Year 10, possibly by some complex speculative transaction. We discuss how issuers should decide whether refunding is appropriate. The recommended analytical tool is refunding efficiency, defined as the ratio of savings to net loss of option value. Savings and option values can be calculated with industry-standard OAS-based analytics. Subtleties include identifying the appropriate interest rate volatility to convert the callable municipal yield curve into true interest rates and using the issuer's taxable borrowing rates to discount tax-exempt cashflows. [ABSTRACT FROM AUTHOR]

Additional Information

  • Source:Journal of Fixed Income. 2025/07, Vol. 35, Issue 1, p40
  • Document Type:Article
  • Subject Area:Business and Management
  • Publication Date:2025
  • ISSN:1059-8596
  • DOI:10.3905/jfi.2025.1.209
  • Accession Number:186778648
  • Copyright Statement:Copyright of Journal of Fixed Income is the property of With Intelligence Limited and its content may not be copied or emailed to multiple sites without the copyright holder's express written permission. Additionally, content may not be used with any artificial intelligence tools or machine learning technologies. However, users may print, download, or email articles for individual use. This abstract may be abridged. No warranty is given about the accuracy of the copy. Users should refer to the original published version of the material for the full abstract. (Copyright applies to all Abstracts.)

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