Municipal Finance

What’s Bad About Yield-to-Worst

Leverage World (August 15 2003)

While yield to worst gives a better indication of a callable bond’s relative value than either yield to maturity or yield to call, it is still unsatisfactory. Option-adjusted spread (OAS) is a superior approach.

Insuring Callable Bonds: Selecting the Right Payment Plan

The Journal of Risk Finance (Spring 2003)

An option valuation framework lets callable bond issuers meaningfully compare the cost of bond insurance purchased through periodic payments over the bond’s life, versus paying a single up-front premium.

Subsidized Borrowing and The Discount Rate: The Case of Municipal Capital Budgeting and Financial Management

Municipal Finance Journal (Winter 1999)

Municipalities should value tax-exempt liabilities using their taxable rates

Ratchet Bonds: Maximum Refunding Efficiency at Minimum Transaction Cost

Journal of Applied Corporate Finance (Spring 1999)

The ratchet bond structure, whose indexed coupon resets periodically only when rates fall, represents a superior alternative to callable bonds. Because it automatically lowers interest payments when rates decline, the inefficiencies and transaction costs associated with calling and refunding are eliminated.

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