Placement Ratio

What Is the Placement Ratio?

The placement ratio, also known as the acceptance ratio, calculates the percentage of new municipal bond offerings greater than $1 million purchased in the prior week.

Understanding the Placement Ratio

The placement ratio is 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 sold in that week. In effect, the placement ratio is the dollar amount of new issues that underwriters have placed with investors, expressed as a percentage of the past week's new municipal bond offerings.

$\begin{aligned} &\text{Placement Ratio} = \frac { \text{Municipal Bonds Sold}}{ \text{Municipal Bonds Available} } \\ \end{aligned}$​Placement Ratio=Municipal Bonds AvailableMunicipal Bonds Sold​​

The higher the placement ratio, the better the overall strength of the municipal bond market. A high ratio indicates 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. Of this, $70 million was sold by underwriting syndicates. The placement ratio is $70 million ÷ $100 million x 100% = 70%. This ratio shows interested parties how well the market absorbed the bonds offered in the previous week.

Recording the Placement Ratio

The data for bonds sold and issued during the week is compiled and published weekly by The Bond Buyer, a financial publication that covers the municipal bond 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 by Moody's or grade AA by Standard & Poor’s, and is used to determine the interest rates for a new issue of general obligation bonds.

The Bond Buyer's placement ratio is compiled every week at the close of business on Friday and reported on Monday. It's also possible to access the publication's archive to view the placement ratio from previous weeks and determine long-term trends.

Special Considerations

The placement 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 the placement ratio in the primary market rose from the previous reading, then this suggests high demand relative to supply and also a favorable market for issuers to enter into.