What Is a Maturity by Maturity Bidding (MBM)?

Maturity by maturity bidding refers to a bond auction mechanism that allows bidders (who are often the issue's underwriters) to submit bids for selected maturities in the issue, rather than requiring buyers to bid for the entire issue on an all-or-none (AON) basis.

Key Takeaways

  • Maturity by maturity (MBM) bidding lets bond buyers select parts of a bond issue to purchase based on maturity.
  • This is less common than all-or-none (AON) bidding, whereby the entire issue is taken down.
  • Maturity by maturity bidding is sometimes seen among municipal bond underwriters.

Understanding Maturity by Maturity Bidding (MBM)

in maturity-by-maturity bidding, a bidder may bid on less than the entire debt offering that is up for sale. This gives smaller underwriting firms more flexibility, allowing them to bid for part of the issue. While uncommon in general, this type of bidding is most often seen in the issuance of municipal bonds ("munis").

Many municipal bonds as well as the U.S. Treasury use a Dutch auction structure to sell securities. A Dutch auction is a market structure in which the price of something offered is determined after taking in all bids to arrive at the highest price at which the total offering can be sold. In this type of auction, investors place a bid for the amount they are willing to buy in terms of quantity and price.

Most auctions require the participants to bid for the entire issue. If, however, a municipal bond issue contains bonds of differing maturities (e.g., 1 year, 3 year, and 5-year notes), a maturity by maturity bidding mechanism can allow certain bidders to identify those maturities only that they would bid for.