BENCHMARKING MUNICIPAL

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2007 NAST TREASURY MANAGEMENT CONFERENCE
BENCHMARKING MUNICIPAL BOND TRANSACTIONS
Prepared by Thomas G. Doe Founder and
CEO Municipal Market Advisors 75 Main
Street Concord MA 01742 Tel [phone]
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2007 NAST Treasury Management Conference
BENCHMARK TIMELINE
BENCHMARK TIMELINE
The Municipal Markets Benchmark Timeline

• 1963 Delphis Hanover Established First
  Benchmark.
• 1981 MMD Formed To Bring Technical Analysis To
  The Municipal Bond Market.
  
  
• Early 1990s Bloomberg Introduced Fair Value
  Curve.
• 1995 Muller (Now FTID) Selected To Price Lehman
  Index.
• 1999 MMA Formed The Consensus.
• 2005 SP Introduced Benchmark Matrix.
• 2006 BMA Swap Curve Utilized As A Benchmarking
  Tool.
• 2007
• First Issuer Uses MMA Consensus For Total Rate of
  Return Swap.
• Dealer Demand For MMA Rate Lock Following
  Questionable Settlements of MMD Rate Locks In
  August.
• Municipal ETF Lehman Swap Products Introduced,
  Increasing Attention on Pricing.

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2007 NAST Treasury Management Conference
COLLABORATION
2008 Collaboration Between Andrew Kalotay
Associates And MMA To Create An Optionless Curve
For Municipal Pricing.

• EVERY SECURITY HAS A FAIR VALUE
• Depends On Underlying Optionless Curve And
  Volatility.
• UNDERSTANDING FAIR VALUE ASSISTS IN TRANSACTION
  EFFICIENCY.
• New Issuance And Refundings.
• Swaps And Fair Forward Rates.

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2007 NAST Treasury Management Conference
BENCHMARK PROCESS
Varied Business Models and Inconsistent Cash
Market Liquidity Challenge The Benchmark Process.

• Tender Option Bond Programs
• Corporations
• Mutual Funds
• Hedge Funds
• Separate Account Management
• Property Casualty Companies

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2007 NAST Treasury Management Conference
BENCHMARK PROCESS
Market Evolution Mandates A Consistent And
Transparent Benchmark Process.

• Source Of Raw Data Must Be Disclosed.
• Process Of Collection Must Be Consistent.
• Evaluation Of Each Maturity By Participants
  Assists In Measuring The Impact Of Specific
  Primary And Secondary Transactions.
• Statistical Methodology Must Protect Against
  Manipulation.
• Benchmark Must Be Available To All Market
  Participants.

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2007 NAST Treasury Management Conference
BENCHMARK PROCESS
Municipal Market Advisors Creates ConsensusSM in
1999

• Involves Leading Dealer And Investor Firms Of The
  Municipal Industry.
• All Firms Equally Weighted.
• Current Coupon Par Curve.
• 10-Year Par Call.
• Consistent Statistical Process.
• MMA ConsensusSM Available To All Market
  Participants Simultaneously.
• State Debt Managers Network, Bloomberg, Reuters,
  Bond Desk, TheMunicenter and SIFMA.

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2007 NAST Treasury Management Conference
BENCHMARK PROCESS
MMA Firm Participation More Than Any Other Index
In The Financial Markets.
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2007 NAST Treasury Management Conference
BENCHMARK PROCESS
Since Inception Participants Input For Benchmark
Has Been Varied.
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2007 NAST Treasury Management Conference
BENCHMARK PROCESS
Different Business Models Explain Disparity Among
Participants.
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2007 NAST Treasury Management Conference
BENCHMARK PROCESS
THE MUNICIPAL CONSENSUSTM

• Aaa G.O. Credit

• Transparency Of Data Source

• A Mid-Market Yield

 

• Disclosure Of Inputed Values

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2007 NAST Treasury Management Conference
USING BENCHMARK DATA
The Consensus is More Than Just a AAA G.O. Yield
Curve - Transparency
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2007 NAST Treasury Management Conference
USING BENCHMARK DATA
Comparison of Benchmarks Quantifies Degree of
Market Demand Because Of Over Reliance On
Specific Data.
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2007 NAST Treasury Management Conference
USING BENCHMARK DATA
Plano TX May 2005 Issued Amid Identifiable
Strong Demand.

• Ahead of the large June 1 municipal reinvestment
  ( 45B) there was exceptional market demand.
• Traditional and non-traditional accounts
  (proprietary desk and hedge funds) were active
  buyers, particularly 15-years and longer on the
  curve.
• Credit downgrades to both GM and Ford encouraged
  a flight to credit quality.
• The broad interest rate rally moved 10 and
  30-year municipal ratios above 90 and 100
  respectively for the first time since April 2004
  and stimulated further interest from crossover
  accounts.

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2007 NAST Treasury Management Conference
USING BENCHMARK DATA

• Evaluation Services Are Key To Comparative
  Analysis Biases Of Matrices Are Critical As
  Evidenced In LMIS (Lehman Swap).
• Benchmarks Published At 300pm ET, Pricing
  Matrices Compiled After 400pm ET and MSRB
  Transaction Spike Occurs Between 200 and 300 pm
  ET.

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2007 NAST Treasury Management Conference
MMA BENCHMARK AVAILABILITY

• THE MUNICIPAL CONSENSUSSM
• Posted on State Debt Managers Network Along With
  MMAs INSIGHT (Market Update Issued 3 Times
  Daily)
• Bloomberg View Yields by typing CMMA.
• Bloomberg OAS1 function Consensus Curve I311.
• Also available on Reuters, TheMunicenter,
  BondDesk, SIFMA and Fabkom.

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2007 NAST Treasury Management Conference
THE MUNICIPAL MARKET ADVISORS TEAM
The MMA Team Tom Doe 978.287.0014 tdoe_at_mma-resear
ch.com Tim Holler, CFA 941.739.9860 tholler_at_mma-r
esearch.com Sean Monsarrat 510.666.8718 smonsarra
t_at_mma-research.com Matt Fabian 203.226.2398 mfab
ian_at_mma-research.com Steve McLaughlin 973.701.111
1 smclaughlin_at_mma-research.com Eliza
Bucens 978.287.0139 ebucens_at_mma-research.com On
the Web www.mma-research.com Mail 75 Main
Street Concord MA 01742
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