How to Buy New Issue Municipal Bonds

Municipal bonds require study before purchase.

The many advantages of new-issue municipal issues all promote a fairer price to the public than dealing in the secondary market. In addition, there are no commission charges to the investor.

Instructions

1. Buy municipal bonds in the new-issue market. To purchase the securities, you must have an account with a registered municipal bond dealer. You cannot, in almost any case, purchase municipal bonds with an online account.

2. Get information on upcoming bond issues. Municipal bond issuance for the week ahead can be found in several periodicals, including "Barron's" and the "Wall Street Journal," and by checking the online version of the Daily Bond Buyer (see Resources). If there is a particular issue that is of interest to you, call your broker.

3. Take advantage of buying new-issue municipal bonds by not paying any charges. The broker is paid his commission by the issuing authority. The broker should give you specific details you need, such as the maturity, credit rating and expected yield of the issue.

4. Place your bond order before the sale, giving the dealer as much time and flexibility as possible. Presale orders take precedence over postsale orders. A large institution may be buying a particular block of bonds, and that order will have preference over yours if it came in before the sale.

5. Wait for verbal confirmation of your bonds later in the day of sale or even the next day. In addition, since most municipal bond issues contain at least 10 years of consecutive maturities, give the broker flexibility to move your order a year in either direction. An advantage of the new-issue market, unlike the secondary market, is that bond yields tend to be more representative of the market with less markups to brokers. Your purchase will be the same price everyone else pays.

Tips & Warnings

• Buy discount bonds if they are available. In a new issue, the bond discount is a "new issue discount" and thus completely tax exempt. This is not always true with a municipal bond bought in the secondary market.

• In competitive bids, it is possible that your broker was not part of the winning syndicate. If this is so, it is possible that the bonds in the winning account were not sold and remain available. Your broker has an obligation to buy them for you at the winning yield even though his commission is lowered.

Resources

• The Daily Bond Buyer