What is Bond Buyer 20?
Bond Buyer 20 is an index whose value is based on a survey of what municipal bond traders estimate will be the yield of a portfolio of 20 general obligation bonds maturing in 20 years, rather than actual prices or yields.
- Bond Buyer 20 is an index whose value is based on a survey of what municipal bond traders estimate will be the yield of a portfolio of 20 general obligation bonds maturing in 20 years, rather than actual prices or yields.
- State and local governments can use the derived yield from the Bond Buyer 20 to estimate the maximum interest rate they can offer on new issues.
- The Bond Buyer 20 is published by The Bond Buyer, a daily financial publication.
General Obligation (GO) Bonds Definition
Understanding Bond Buyer 20
The Bond Buyer 20 index tracks the average yields of 20 general obligation municipal bonds. The average rating of the 20 bonds that make up the index are grade Aa2 (Moody's rating) or grade AA (Standard & Poor’s rating). Bond Buyer 20 is a representation of municipal bond trends based on a portfolio of 20 general obligation bonds that mature in 20 years. The index is based on a survey of municipal bond traders rather than actual prices or yields. The Bond Buyer 20 is published by The Bond Buyer, a daily financial publication. Bond Buyer 20 is also referred to as the GO 20 Index or the 20 Bond Index.
The Bond Buyer 20 index is simply a theoretical and estimated average of bond yields. It is used to determine the interest rates for a new issue of general obligation bonds. General obligation (GO) bonds are municipal bonds which have their interest and principal payment obligations funded from the state or local government’s financial coffers. These bonds are backed by the full faith and credit of the municipal government which may have the authority to increase taxes in order to fulfill its payment obligations on the GO bond. In effect, the Bond Buyer 20 index shows the trend in interest rates for GO bonds.
The average yield drawn from the index is taken from a survey of municipal bond traders who are asked to estimate what a current coupon bond for each issuer in the indices would yield if the bond was sold at par value. State and local governments can use the derived yield to estimate the maximum interest rate they can offer on new issues. For example, the 2020 Florida statutes note that “bonds may bear interest at a rate not to exceed an average net interest cost rate, which shall be computed by adding 300 basis points to The Bond Buyer “20 Bond Index” published immediately preceding the first day of the calendar month in which the bonds are sold.”
The Bond Buyer Index provides an indication of the average weekly yield of the Bond Buyer 20 Index. The Bond Buyer Index is based on the prices of 40 recently issued and actively traded long-term municipal GO and revenue bonds calculated by The Bond Buyer, which expresses the value of the index in points and 1/32ds (thirty-seconds).
The Bond Buyer financial publication publishes the Bond Buyer 20 index in addition to other bond indices, such as the Bond Buyer 11 Index, the Revenue Bond Index (RBI), the SIFMA index, and the Municipal Market Data (MMD) Curve. The Bond Buyer 11 Index uses a select group of 11 bonds from the Bond Buyer 20. The average rating of the 11 bonds is roughly equivalent to Moody's Aa1 and S&P's AA-plus.