DEFINITION of Bond Buyer Index

The bond buyer index is an index published by The Bond Buyer, a daily finance newspaper that covers the municipal bond market. Investors use the Bond Buyer Index to plot interest rate patterns in the municipal market. Traders use the daily Bond Buyer Index to trade municipal bond index futures and futures options at the Chicago Board of Trade (CBOT).

The bond buyer index can also be referred to as the Bond Buyer's Municipal Bond Index.

BREAKING DOWN Bond Buyer Index

The Bond Buyer Index, also known as the BB40 index, is based on the prices of 40 recently issued and actively traded long-term municipal bonds. The 40 municipal bonds included in the index comprises of general obligation and revenue issues rated A or better with a term portion of at least $50 million ($75 million for housing issues); at least 19 years remaining to maturity; a first call date between seven and 16 years; and at least one call at par before redemption. The Bond Buyer Index is calculated by The Bond Buyer, which expresses the value of the index in points and 32ds (thirty-seconds). The price quotations provided by six municipal bond dealers are used to calculate the index’s value twice a day – 12pm and 3pm. The index is published daily and the components of the index are adjusted twice per month.

While bonds that are noncallable and bonds that are subject to the alternative minimum tax (AMT) and fixed-rate remarketings are eligible for inclusion in the index, taxable bonds, variable-rate bonds, and private placements are excluded.

The Bond Buyer Index was created by the Chicago Board of Trade (CBOT) to be the basis for the Municipal Bond Index futures and options contract. The futures contracts are quoted in points and 32ds of principal value, and the options contracts are quoted in points and 64ths. The unit value of each contract is $100,000 and a one-32d change in price represents $31.25. In addition, investment advisers use the Bond Buyer's municipal bond index to evaluate and track changes in new issues of high rated municipal bonds.

The Bond Buyer Index provides an indication of the average weekly yields of the Bond Buyer 20 Index, the Bond Buyer 11 Index, the Revenue Bond Index, the SIFMA index, and the Municipal Market Data (MMD) Curve. All these indices are widely watched by investors and traders in the municipal bond market. The Bond Buyer 20 index, for instance, tracks the yields of 20 general obligation municipal bonds.