Monday's Wall Street Journal article, Muni Bond Costs Hit Investors in Wallet: Investors Pay Twice as Much for Municipal Debt as for Corporate Bonds, points out yet again that investors pay far more to buy and sell municipal bonds than they pay to buy and sell similar quantities of corporate bonds or common stocks. The article cites a recent S&P study that finds investors buying a $100,000 municipal bond pays an average spread of 1.73% or $1,730 - twice as much as the 0.87% average spread investors pay when buying a $100,000 corporate bond.
Last summer SLCG distributed an analysis of the markups and markdowns on over 20 million municipal bond trades. We estimated that investors have been charged $1 billion a year in excessive markups on municipal bond trades since 2005. Our study, Using Emma to Assess Municipal Bond Markups is available here. The SLCG report received significant coverage including The Bond Buyer article, Study Claims Billions of Dollars of Excessive Muni Markups.
Investors pay high markups on municipal bond trades because of a lack of pre-trade price transparency and post-trade markup disclosure. Simple disclosure requirements already in place in the corporate bond market would dramatically improve how the municipal bond markets operate for investors and taxpayers. The merits of such reform are now clear after a dozen published research papers on excessive markups in the municipal bond markets.
