![]() Because this bond’s first call date is in seven years, it has no direct comparison point on the MMD curve. Let’s take, for example, a bond with 15 years to maturity and a seven-year lockout period (abbreviated as 15NC7). Unfortunately for investors, this can lead to bond mispricing. ![]() However, most bonds in the secondary market do not match the call and coupon assumptions of the MMD curve, which has led to the development of a municipal market convention of quoting yield spreads on a maturity-matched basis. Pricing munis in the secondary market is more challenging Given these assumptions, the MMD curve acts as a benchmark for determining how cheap or expensive a newly issued 5% coupon callable municipal bond (or non-callable bond under 10 years to maturity) appears relative to the broader market.
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