An analysis of the failed municipal bond and note futures contracts

Research output: Contribution to journalArticle

3 Citations (Scopus)

Abstract

This study analyzes the failure of the municipal bond and municipal note futures contracts. The municipal bond contract is shown to have been the most effective hedge in the municipal market over its tenure. Changes in volume in the municipal bond contract were closely related to changes in the volume in the U.S. Treasury bond futures contract, the spot-municipal-over-bonds (MOB) ratio, and visible supply. The failure of the municipal bond contract is mainly attributed to a decrease in trading volume in the U.S. Treasury futures market. This was impacted by the onset of electronic trading, which the municipal futures market was reluctant to embrace. The municipal note contract was a less effective hedge than U.S. Treasury note futures and ten-year London Interbank Offered Rate swaps. The failure of the municipal note futures contract is attributed to the existence of well-established alternative hedges, and segmentation in the municipal market.

Original languageEnglish (US)
Pages (from-to)656-679
Number of pages24
JournalJournal of Futures Markets
Volume28
Issue number7
DOIs
StatePublished - Jul 1 2008

Fingerprint

Futures contracts
Municipal bonds
Hedge
Futures markets
Swaps
Trading volume
Electronic trading
Segmentation
Tenure
Treasury bonds

All Science Journal Classification (ASJC) codes

  • Business, Management and Accounting(all)
  • Accounting
  • Economics and Econometrics
  • Finance

Cite this

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abstract = "This study analyzes the failure of the municipal bond and municipal note futures contracts. The municipal bond contract is shown to have been the most effective hedge in the municipal market over its tenure. Changes in volume in the municipal bond contract were closely related to changes in the volume in the U.S. Treasury bond futures contract, the spot-municipal-over-bonds (MOB) ratio, and visible supply. The failure of the municipal bond contract is mainly attributed to a decrease in trading volume in the U.S. Treasury futures market. This was impacted by the onset of electronic trading, which the municipal futures market was reluctant to embrace. The municipal note contract was a less effective hedge than U.S. Treasury note futures and ten-year London Interbank Offered Rate swaps. The failure of the municipal note futures contract is attributed to the existence of well-established alternative hedges, and segmentation in the municipal market.",
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An analysis of the failed municipal bond and note futures contracts. / Cusatis, Patrick James.

In: Journal of Futures Markets, Vol. 28, No. 7, 01.07.2008, p. 656-679.

Research output: Contribution to journalArticle

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