Maturity by Maturity Bidding (MBM)

What Is a Maturity by Maturity Bidding (MBM)?

Maturity by maturity bidding alludes to a bond auction mechanism that permits bidders (who are in many cases the issue's underwriters) to submit bids for chosen maturities in the issue, as opposed to expecting buyers to bid for the whole issue on an all-or-none (AON) basis.

Understanding Maturity by Maturity Bidding (MBM)

in maturity-by-maturity bidding, a bidder might bid on not exactly the whole debt offering that is available to be purchased. This gives more modest underwriting firms greater flexibility, permitting them to bid for part of the issue. While uncommon as a general rule, this type of bidding is most frequently found in the issuance of municipal bonds ("munis").

Numerous municipal bonds as well as the U.S. Treasury utilize a Dutch auction structure to sell securities. A Dutch auction is a market structure in which the price of something not entirely set in stone in the wake of taking in all bids to show up 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 will buy in terms of quantity and price.

Most auctions require the participants to bid for the whole issue. If, nonetheless, a municipal bond issue contains bonds of varying maturities (e.g., 1 year, 3 year, and 5-year notes), a maturity by maturity bidding mechanism can permit certain bidders to distinguish those maturities just that they would bid for.

Features

• This is more uncommon than all-or-none (AON) bidding, by which the whole issue is brought down.
• Maturity by maturity (MBM) bidding lets bond buyers select parts of a bond issue to purchase in view of maturity.
• Maturity by maturity bidding is now and again seen among municipal bond underwriters.