Bond Education | Articles


Determining Bond Values

Investors know bond values are subject to fluctuate relative to the economy and prevailing interest rates. Bond values will move in the opposite direction of variable market interest, and municipal bonds will possess a premium when their fixed coupon rate falls above the current market rate. Muni bonds differ from the liquid, stable nature of the stock market in that they are not bought and sold rapidly; rather, they are held by investors to collect interest over time. They are most often traded before they reach their maturity point, as the focus is not on collecting the principal, because the value of a municipal bond that is approaching its maturity point will simply revert to par. Thus, the income municipal bonds produce is the real focus.

Muni Bonds Supply and Demand

Supply and demand is a significant factor for determining bond values, and fortunately, the economic recession yields good implications for bond investment. As reactionary issuing agencies put a hold on expenditures, fewer bonds are issued, and bond values, commanding higher bond pricing and lower interest, are subject to rise. Additionally, the demand for muni bonds is increasing with higher taxes and the introduction of taxable BABs (Build America Bonds). These events will effectively reduce the amount of new tax free bonds being issued and bond values will go up.

Muni Bonds Ratings

Bond values are also largely determined by their assigned credit ratings. The likes of Moody’s will assign ratings, ranging from AAA to C, to muni bonds, which many will consider when assessing value; however, you should be careful not to throw caution to the wind and make decisions solely based on these ratings, as they are not always in synch with actual bond values. Moreover, it’s known that Moody’s has been reprimanded for not having properly monitored older bonds in the past. Smart investors know to do their own research and follow market price-based credit ratings, as they generally give a more realistic and accurate depiction of present bond values. Muni bonds that have prospective buyers are considered to be more valuable and are traded more often, in turn. It should be noted that not all bonds are rated, and those without scores have far less buyer potential.

Calculating Bond Values

For determining present value calculations, yield-to-maturity is used to compare bond values between those of differing coupon rates, par values, and maturity periods. Traditionally, not all individual investors have taken it upon themselves to manage their own muni bonds, but has now simplified the process with a Price Check feature that utilizes a unique, proprietary algorithm that makes the process of determining fair market bond values simple. Through research, smart decision-making, and the effective "common sense" bond manager tools and services offered by, investors can make the most of their muni bonds investments.