MSRB Clarifies Misunderstandings on Negative Yield Municipal Bonds

In an effort to respond to questions about certain trades that have a negative yield, as reported to the MSRB’s Real-Time Transaction Reporting System, the MSRB provided clarity on misunderstandings around negative yield municipal bonds.

The MSRB stated that the majority of municipal transactions have positive yields, but that there are a limited number of transactions that appear to have a negative yield. The MSRB explained that a negative yield is due to the "unique bond structure" of certain callable municipal bonds because when called early the "gain or loss of principal contributes to the overall yield of the bond." The MSRB also noted that while it may seem "counterintuitive," certain investors may benefit from buying bonds with a stated negative "yield-to-worst" as part of an overall portfolio strategy.

The MSRB cautioned that investing in such bonds requires substantial research.