Municipals-Over-Bonds Spread (MOB)

MOB represents municipal over bond.
The MOB spread is the difference in price between municipal bond futures and Treasury bond futures. The muni futures contract is the "municipal" in MOB, and the Treasury contract is the "bond."
When the muni contract is rising quicker (or falling all the more leisurely) than the Treasury contract, the MOB spread will rise, or augment. Conversely, when the Treasury contract is outperforming the muni contract, the MOB spread will fall, or narrow.
To profit from a rising MOB spread, a trader would pair a long position in the muni contract with a short position in the Treasury contract. Even on the off chance that the two contracts got more expensive, as long as the muni contract outperformed the Treasury contract the trade would be profitable.
Conversely, to profit from a falling MOB spread, a trader would pair a short position in the muni contract with a long position in the Treasury contract.
The Treasury contract tracks the price of a 30-year Treasury bond (however not really the most as of late issued, or on-the-run, 30-year). The muni contract tracks the price of an index of muni bonds.
Interest rates are a major reason for shifts in the MOB spread. That is on the grounds that the Treasury bond followed by the Treasury futures contract is noncallable. Conversely, most muni bonds are callable. At the point when interest rates fall, noncallable bonds outperform callable bonds. So when interest rates fall, the MOB spread commonly falls.
Changes in the muni index can likewise reason for shifts in the MOB spread. The index is routinely reconfigured to integrate recently issued munis and throw out more established bonds. The cosmetics of the index decides how it will respond to changes in interest rates. So changes in the pace of new issuance and in the average quality of new issues can influence the MOB spread.