Municipal Bond Pricing: The SQX Difference
The Municipal Bond Pricing Challenge
In Muniland, information is everything. Unlike other fixed-income securities, municipal bonds often suffer from low liquidity and infrequent trades, making it uniquely difficult to value them. The diversity among municipal bonds—ranging from general obligation bonds to revenue bonds—makes the situation even more complicated.
Unfortunately, getting muni bond data from the big data vendors can be deeply unsatisfying. Their pricing methods don’t always use all available data—their traditional methods (like bootstrapping and interpolation) can miss critical details, increasing risk. Just as bad, other data vendors often lack transparency while charging exorbitantly high prices. We find this situation frustrating too.
SQX exists to offer a new way to get municipal bond data. We believe that muni bond pricing should be accurate, transparent, and flexible. Data vendors shouldn’t be content with merely meeting the industry standard, but should seek excellence in every way. Let’s talk about how SQX pursues this goal.
Our Muni Pricing Methodology
SQX uses an MSRB-Rule-G-30-compliant waterfall of methodologies to calculate prevailing market price. Here's how each methodology works.
Tier 1 - Recent Trades:
SQX begins with direct pricing, using the most recent trades within the last 30 days. Adjustments are made for the trade side (bid or offer), lot size (retail or institutional), and rate movements since the trade. This tier ensures that the freshest market data is utilized.
Tier 2 - Bids and Offers:
If the bond hasn’t traded in the last 30 days, we select the best quotes (bids or offers) from the last 30 days instead. Similar adjustments for trade side, lot size, and rate movements are applied. Using this data helps provide a more complete picture than actual trades alone. SQX is proud to use bid/offer data from Municipal Bond Information Services (MBIS).
Tier 3 - Historical Spread Model:
If there’s been no recent market activity at all, SQX uses historical pricing data from market participants, adjusting for trade side, lot size, and rate movements. The most appropriate yield curve is selected, providing a refined historical perspective that leads to more accurate valuations.
Tier 4 - Peer Pricing Model:
If historical data is limited, we select similar “peer” bonds with recent market observations. Adjustments are made for yield, maturity, and credit differences between the bond and its peer. This tier ensures that even when direct data is scarce, comparable bonds can offer a reliable pricing reference.
Tier 5 - Curve Pricing:
When no direct market data or suitable peers are available, SQX applies curve pricing. This method uses the bond’s credit rating and sector to find the most appropriate yield curve. Adjustments are then made to align the yield with the bond’s specific characteristics.
Through this meticulous five-tier process, SQX ensures that our clients are always being given the most accurate price available. We’ll never use a Tier 4 price if there’s a Tier 1, 2, or 3 available, for instance.
Complete Muni Bond Pricing Transparency
But how can you be sure? Muni bond valuations from big data vendors are shrouded in secrecy—needing to operate in the dark is expected. You’ll just have to take our word that we’re giving you the best price, right?
Wrong. At SQX, we provide complete pricing transparency on every price you receive. Unlike some providers who may obscure their methods, our daily file includes the pricing tier for each security, followed by all the input data, supporting values, and intermediate results for each price. For every single muni bond valuation, you’ll know exactly how that price was created and what tier we used to do it. That’s quite the change of pace.
The SQX Difference
What’s even more remarkable than knowing how your valuations were created? Not having to pay an arm and a leg. SQX’s muni bond coverage is always affordable, providing high-quality data without the exorbitant costs that often plague the industry. The only thing better than getting great coverage is getting great coverage for less money.
At SQX, we cover an extensive universe of roughly 1,000,000 municipal bonds. We make our muni bond clients munillionaires—wealthy with municipal bond data! For each of the muni bonds we price, no matter how niche, we offer daily pricing updates, delivered via SFTP or API. Our clients can count on receiving updated, accurate data in real time.
Our muni bond clients receive more than just prices, however. At SQX, we pride ourselves on offering some of the best customer service in the business. Our friendly support team always responds within a single business day (usually within a single hour). If a client has a need, we drop everything to make sure it’s met. When was the last time you saw that kind of service from a big data vendor?
SQX is here to be a different sort of municipal bond data vendor. If you’re interested in transparent muni valuations, constant updates, exceptional customer service, and affordable prices, look no further than SQX.
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