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Placement Ratio

Placement Ratio
InvestingBondsMunicipal Bonds

What Is the Placement Ratio?

The placement ratio, otherwise called the acceptance ratio, works out the percentage of new municipal bond offerings greater than $1 million purchased in the prior week.

Figuring out 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 seven days to the number of bonds sold in that week. In effect, the placement ratio is the dollar amount of new issues that underwriters have set with investors, communicated as a percentage of the past week's new municipal bond offerings.
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The higher the placement ratio, the better the overall strength of the municipal bond market. A high ratio shows there is a ton of interest from bond underwriters. On the other hand, a low ratio points to a sluggish market and lack of interest from underwriters.

For instance, expect $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 \u00f7 $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 gathered and distributed week by week by The Bond Buyer, a financial publication that covers the municipal bond market. The paper distributes various 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 and Poor's, and is utilized to determine the interest rates for another issue of general obligation bonds.

The Bond Buyer's placement ratio is incorporated consistently at the close of business on Friday and reported on Monday. It's additionally conceivable to access the publication's chronicle to see the placement ratio from previous weeks and determine long-term trends.

Special Considerations

The placement ratio is utilized as an indicator of where the bond market is going. A sizable inventory of unsold bond issues in the primary market flags a depression in the secondary market. On the off chance that The Bond Buyer states the placement ratio in the primary market rose from the previous perusing, then this proposes high demand relative to supply and furthermore an ideal market for issuers to go into.

Highlights

  • The placement ratio, otherwise called the acceptance ratio, ascertains the percentage of new municipal bond offerings greater than $1 million bought in the prior week.
  • A higher placement ratio shows a strong municipal bond market and higher interest from bond underwriters. On the other hand, a low ratio points to a sluggish market and lack of interest from underwriters.
  • The data for bonds issued and sold during the week is gathered at the close of business on Friday and reported on Monday by The Bond Buyer.