Recent illiquidity in the municipal bond market is making price discovery difficult for traders, a problem that is being complicated by divergences in the indexes they use to track benchmark yields.

In one stark example, on May 30 the Bloomberg Valuation Benchmark Municipal Curve, or BVAL, showed a selloff that drove yields 27 basis points higher. The Municipal Market Data scale and the Municipal Market Advisors scale showed yields flat that day. With a variety of different of indexes to choose from, each with different methods of pricing, investors have to be particularly careful in illiquid markets, traders say.

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