DEFINITION of 'Placement Ratio'

The placement ratio is a ratio that calculates the amount of bonds sold during the week as a percentage of the amount of municipal bonds that are issued during the corresponding week. Only issues of $10,000,000 par value or more are used in the calculation.

Placement ratio is also known as the acceptance ratio.

Placement Ratio

BREAKING DOWN 'Placement Ratio'

The placement ratio is used by investors as an indicator of the overall situation of the municipal bond market. The ratio compares the number of newly issued bonds (competitive and negotiated) during a week to the number of bonds that were sold in that week. In effect, the placement ratio is the dollar amount of new issues that have been placed with investors by underwriters, expressed as a percentage of the past week's new municipal bond offerings. The higher the placement ratio, the better off the municipal bond market is, as a high ratio indicates that the municipal bond market is sold and there is a lot of interest from bond underwriters. Conversely, a low ratio points to a sluggish market and lack of interest from underwriters.

For example, assume $100 million par value municipal bonds were issued last week. $70 million of this offering was sold by underwriting syndicates. The placement ratio is, therefore, $70 million / $100 million x 100% = 70%. This ratio shows interested parties how well the market absorbed the bonds offered in the previous week.

The data for bonds sold and issued during the week is compiled and published weekly by the market newspaper, "The Bond Buyer". The Bond Buyer is a financial publication that covers the municipal bond market by tracking and reporting trends in this market. The newspaper publishes numerous indices, one of which is the Bond Buyer 20 Index. This index tracks the average yields of 20 general obligation municipal bonds rated grade Aa2 (Moody's rating) or grade AA (Standard & Poor’s rating) and is used to determine the interest rates for a new issue of general obligation bonds.

The placement ratio is compiled every week at the close of business on Friday and is reported on Monday. The ratio is used as an indicator of where the bond market is headed. A sizable inventory of unsold bond issues in the primary market signals a depression in the secondary market. If the Bond Buyer states that the placement ratio in the primary market rose from 70% to 93% in the past week, this suggests high demand relative to supply and also a favorable market for issuers to enter into.

RELATED TERMS
  1. Bond Buyer 20

    Bond Buyer 20 is a representation of municipal bond trends based ...
  2. Bond Buyer Index

    The bond buyer index is an index published by The Bond Buyer, ...
  3. Municipal Bond

    A municipal bond is a debt security issued by a state, municipality ...
  4. Bond Ratio

    A bond ratio is a financial ratio that expresses the leverage ...
  5. Combination Bond

    Combination bonds are municipal bonds with financial backing ...
  6. Bond Market

    The bond market is the environment in which the issuance and ...
Related Articles
  1. Investing

    The Basics Of Municipal Bonds

    Investing in municipal bonds may offer a tax-free income stream, but such bonds are not without risks. Check out types of bonds and the risk factors of muni-bond.
  2. Investing

    Why Muni Bonds and Bond Funds are Perfect Together

    Municipal bonds and bond funds differ in several ways, which is partly why they complement each other well.
  3. Investing

    A Look at the Pros and Cons of Muni Bonds

    Considering muni bonds? Here's a look at their pros and cons.
  4. Investing

    Muni Bonds, Taxable Bonds or CDs: Which is Best?

    Here's how to tell if municipal bonds are a better investment than taxable bonds or CDs.
  5. Financial Advisor

    Why You Should Invest In Municipal Bond ETFs

    These versatile instruments have become popular with investors in higher tax brackets and fill a specific niche in the wide selection of fixed-income offerings.
  6. Investing

    4 Tax-Free Muni Bond ETFs to Consider

    Tax free municipal bond ETFs are an excellent way to build wealth slowly. Here are 4 you should consider.
  7. Investing

    The Top 5 Municipal Bond Funds for 2016

    Understand how the addition of municipal bond mutual funds can enhance a portfolio, and learn the top-rated municipal bond funds to consider for 2016.
  8. Investing

    Corporate Bond Basics: Learn to Invest

    Understand the basics of corporate bonds to increase your chances of positive returns.
  9. Investing

    The Best Bet for Retirement Income: Bonds or Bond Funds?

    Retirees seeking income from their investments typically look into bonds. Here's a look at the types of bonds, bond funds and their pros and cons.
  10. Investing

    The Basics Of Bonds

    Bonds play an important part in your portfolio as you age; learning about them makes good financial sense.
RELATED FAQS
  1. What are the risks of investing in a bond?

    Are you thinking of investing in bond market? Learn more about bond market investment risk, including interest rate risk, ... Read Answer >>
Trading Center