In response to concerns from their broker-dealer clients, Thomson Financial’s Municipal Market Data created a new variable-rate demand obligation average yesterday that will exclude all floating-rate paper insured by a monoline insurer.

Michael Downing, team leader for MMD’s short-term desk, said yesterday that after the Friday downgrade of Ambac Assurance Corp. to double-A from triple-A the market began to trade short-term floating paper insured by Ambac and other triple-A insurers significantly cheaper. As a result, the daily VRD average that MMD produces was significantly higher on Monday than what the market was expecting. It is from this daily average, but with added criteria for stabilization, that the Securities Industries and Financial Market Association’s widely used Municipal Swap Index, which resets weekly, is derived.

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