Investing Tax Free

Municipal Bond Offerings

What does municipal bond offerings mean?

Municipal bond offerings refer to the act of issuing municipal bonds by state, cities, towns or municipalities. When a state, city, town or municipality needs to raise money for a project, it can issue bonds to the public or make municipal bond offerings.

How are municipal bond offerings done?

When a new municipal bond is to be issued, the issuer would first obtain a "preliminary legal opinion" which determines how the municipal bonds will be offered. Then the terms of the offerings will be set by one of the two methods below.

Two methods of municipal bond offerings

Municipal bond offerings can be done in two ways.

Negotiated Underwriting

The first is for the issuer to arrange or negotiate with one or a few securities firms to underwrite the municipal bond. The bond issuer works closely with these selected securities firms to establish the terms of the municipal bonds such as municipal bond interest rates and the municipal bond offering price. Factors such as the financial needs of the issuer as well as the condition of the market are considered.

Competitive Bidding

The second way is to ask for competitive bids. While many issuers prefer to have a working relationship with a few particular securities firms, both methods have their advantages.

What does a competitive bid mean?

A competitive bid in the case of a municipal bond offering is when interested securities firms place bids for underwriting of the municipal bond. The issuer then chooses and works with the securities firm with the lowest bid to sell the bond. With a competitive bid, price is the only factor considered whereas with underwriting negotiations with particular securities firms other factors are also considered.