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How Are Municipal Bonds Priced?

There are over one million active municipal bonds. Most trade infrequently and very few trade prices are reported. The two primary municipal bond pricing services are ICE Data Pricing and Reference Data LLC (ICE) and Standard and Poor's, JJ Kenney. Both provide calculated valuations on a daily basis. Since 1983, EVP Systems, Inc. has been supplying pricing from ICE through EstateVal, a component of EVP Office.

Through ties within the municipal bond community, ICE gets information each day on actual municipal bond sales. They use that information to estimate movements in the market for bonds and for the issues of particular municipalities.

Market conditions are combined with descriptive information on all the individual securities, including interest rates, payment schedules, ratings, insurance status, call and put schedules and other information. All of these become points in a "matrix" that influence their estimated value of the securities. A rich descriptive database is crucial in evaluating a bond.

The IRS Code, Reg. 20.2031-2 (c) (d) and (f) refer specifically to the bona fide bid and asked prices. Bona fide bid and ask prices are not available for municipal bonds. Reg. 20-2031-2 (f) states that when actual sale prices and bona fide bid and asked prices are lacking, then the fair market value is to be determined by taking the following factors into consideration: (1) In the case of corporate or other bonds, the soundness of the security, the interest yield, the date of maturity, and other relevant factors;

EVP Office retrieves what ICE Data Pricing and Reference Data LLC refers to as the "Best Price" and "Unadjusted Best Price" Their description of the data items (PRC and UAPRC) is as follows:

Best Price (PRC)
Unadjusted Best Price (UAPRC)

PRC retrieves the price generally accepted as the most appropriate representation of a security's closing market value based on individual market conventions. UAPRC is similar to PRC, except that the data are not adjusted for capitalization changes.

EVP Office retrieve the "Unadjusted Best Price" for municipal bonds (A distinction between "adjusted" and "unadjusted" is only relevant for equities.) We note these prices as "Mkt", or market.

If you want more information about how we price municipal bonds, click on this link to ICE's website: https://www.theice.com/market-data/pricing-and-evaluations.

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