What Is the Bond Buyer 11 (BB11)?

The Bond Buyer 11 (BB11) index is a theoretical and estimated average of bond yields that is published by The Bond Buyer, a daily finance newspaper that covers the 澳洲幸运5官方开奖结果体彩网:municipal bond market and tracks 40 highly🌸-rated, long-term municipal bonds. The Bond Buyer publishes the BB11 for use as a benchmark in tracking municipal bond yields.

There are hundreds of 澳洲幸运5官方开奖结果体彩网:market indexes. In general, a market index is a hypothetical 澳洲幸运5官方开奖结果体彩网:portfolio of investment holdings that represents a segment of the 澳洲幸运5官方开奖结果体彩网:financial market. The calculation of the index value comes from the prices of the underlying holdings. Some market indexes foc𝓰us on the entire s🧜tock or bond market. Others focus on a specific sector within the market, such as technology. 

Understanding the Bond Buyer 11

The calculation of the BB11 is from the average yield of 11 selected general obligation municipal bonds maturing in 20 years. 澳洲幸运5官方开奖结果体彩网:General obligation (GO) bonds are municipal bonds that have their interest and principal payment obligations funded from the state or local government’s financial coffers. They are backed by the full faith and credit of the municipal government. In some cases, the issuing municipal government has the authority to increase tax﷽es in order to fulfill its payment obligations on the GO bond.

The BB11 is composed of 11 of the 20 bonds in the 澳洲幸运5官方开奖结果体彩网:Bond Buyer 20 (BB20). BB20 is another one of The Bond Buyer's indexes. It is based on a portfolio of 20 general obligation municipal bonds that mature in 20 years. The BB20 index is based on a survey of municipal bond traders, rather than actual prices or yields. As a theoretical and estimated average of 澳洲幸运5官方开奖结果体彩网:bond yields, the BB20 is used to determine the interest rates for a new issue of 澳洲幸运5官方开奖结果体彩网:general obligation bonds. 

The average rating of the 11 bonds that make up the BB11 index is Aa2 (as rated by Moody's) and grade AA (as rated by 澳洲幸运5官方开奖结果体彩网:Standard & Poor’s).

There are many indexes published by The Bond Buyer, in addition to the BB11 and the BB20. All of these indexes are widely watched by investors and traders in the municipal bond market. Other indexes include the Bond Buyer's Municipal Bond Index, the Revenue Bond Index, the 澳洲幸运5官方开奖结果体彩网:SIFMA index, and the Municipal Market Data (MMD) Curve.

Criticisms of Bond Indexes

Some potential problems are inherent in bond indexes. Most bond indexes are market-weighted, meaning their basis is on 𒈔the market value of the bonds. So companies with more debt have a higher allocation in a corporate bond index.

It may not be beneficial to hold more of a company’s debt as it borrows more. Also, many bonds don’t frequently trade so they have wide spreads. Wide spreads make it difficult to price these bonds because they may not have traded in weeks. Any method to calculate the price would generate an estimate, w⭕hich may not be close to the actual price of the next trade. To eliminate this problem, a bond index may be structured to include only more liquid, or mostly liquid bond, issues with tight spreads that have frequent trades.

However, if the index consists of too few bonds, it can create another problem. Traders may be able to front-run a smaller index by anticipating which bonds a bond fund would buy and sell. This front-running couldཧ enable the traders to generate low-risk profit at the expense of the fund buyers and sellers. The solution is to include a more significant number of bonds (this is true for many indexes). Also, most bond indexes don’t include smaller bond issues to minimize the problems associated with a lack of liquidity.

Another issue is when a bond reaches maturity, it ceases to exist. Because of this, there is a natural turnover built into every bond index. However, the characteristic🌃s of the bonds added may differ from the characteristics of those removed from the index. As a result, essential features of a bond index, such as the average maturity of bonds in the index, can change every year.