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KPI of the Day – Investment Performance: % Placement ratio

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Definition

Measures the percentage of municipal bonds that were sold during a week. Only issues greater or equal to $1 million are used in the calculation.

Purpose

To assess the percentage municipal bonds greater or equal to $1 million that were sold during a week.

Recommendations

Bonds are gaining in popularity due to their placement in bankruptcy proceedings. As investors are toning down their risk, fixed income investing is one way to do this. Bonds can also be very efficient at smoothing out volatility and preserving capital.

The regular income distributions bonds generate help cushion downside while still providing upside. This KPI is published by the Bond Buyer’s that is a daily financial publication.

In the finance industry, municipal bonds are bought and purchased from underwriters every week. The figures are then tabulated and presented in percentages, mainly using the % Placement ratio indicator.

For financiers, the indicator is used to showcase trends in the primary market, as well as quantify the demand for bonds in general. In addition, the % Placement ratio is vital for reflecting on the secondary market demand, where most public offerings take place.

For example, a sizable inventory of newly issued stock on the primary market would increase the performance of the secondary market, while unsatisfied demand for the newly issued stock would hinder the performance of the secondary market overall.

Such movements in financial markets are captured in the % Placement ratio. Financiers are also recommended to look into the historical data for bonds sold through the indicator, as it signals the competitiveness and quality of the bonds.

Other recommendations to optimize the % Placement ratio indicator are as follows:

  • Compile the sales data regularly and network with other companies to increase accuracy;
  • Evaluate the high and low-placement ratio and pinpoint any recurring patterns;
  • Look into historical data to forecast and plan on future stock issuance.

The placement ratio is used by investors as an indicator of the overall situation of the municipal bond market. The higher the placement ratio, the better off the municipal bond market is.

Image source:

KPI of the Day – Investment: # Mutual fund liquidity ratio
KPI of the Day – Investment: # Treynor ratio
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