But a flood of issuance in the BABs market and a dearth of issuance on the tax-exempt side would cause tax-exempt yields to fall, McCarthy said, which would then motivate issuers to borrow in the tax-exempt market. “Back in the spring of 2007 when you were allowed to leverage 10 or 12 times, the carry wasn’t very good per bond, because that spread was very thin,” said Jed McCarthy, managing member of muni-only hedge fund 1861 Capital Management in New York. “When muni-to-Treasury ratios would get out of whack, these guys would come in and buy a little more to support their money-making trade efforts,” said Tom Kozlik, municipal analyst at Janney Capital Markets. A tender option bond (from now on TOB) is the municipal bond market's answer to the classic borrow short and invest long. NASA,
To earn a profit on those thin margins, TOB investors in 2007 had to increase the risk on their bets by leveraging at 10 times or more. TOB Stands For : Take Over Bid. The other is that marketing the ratio trade remains difficult as risk appetite remains tepid among investors. T.O.B. The tax-exempt yield on the certificate is relatively low — usually based on the Securities Industries and Financial Markets Association swap index — but the tender option compensates by giving the floater-holder the right, on specified dates, to receive par value for it. “And look at where financing is now on an absolute basis,” he added, referring to the SIFMA swap rate, which averaged 0.20% in the first three months of this year. Before the credit crisis, the most active time for creating new TOB trusts was in the first half of 2007, according to Standard & Poor’s. Lower leverage means less risk, and generally that means less potential for profit. © 1988-2021,
The floater certificate, or senior note, provides a short-term variable-rate with a put option. To some, the prospect of exotic products returning to the market with force might not sound too welcome, but participants familiar with the trade point out that the risks associated with TOB programs have largely been reduced. Adjective and noun טוב ( tob ) means good; noun טוב ( tub ), describes a good thing or goodness, and noun טובה ( toba ) denotes welfare. NAS Exhaustive Concordance. In trader parlance, the floater certificate is known as the tender-option bond. BABs cannot be deposited into the trusts because the tax-exempt floaters must be backed by tax-exempt collateral. Acronym Finder, All Rights Reserved.
Finance is the study of money management and the process of acquiring needed funds. And if you didn’t have that, they would force you to unwind the trust.”. What is TOB? This page is all about the meaning, abbreviation and acronym of TOB explaining the definition or meaning and giving useful information of similar terms. But when the credit crisis hit financial markets, the once-lucrative carry trade quickly went sour, forcing those involved to unwind the trades and take heavy losses. Holders of the floating-rate certificates were forced to exercise the put option and sell the certificates back to the trusts, forcing the liquidity sponsors to cough up cash. Problems aren’t only confined to the supply side. The spousal meaning of the body prefigures the redemptive meaning of the body. In the current climate, the investor could reduce leverage to just two times — cutting the risk of the trade by a third — and earn an annual return of 10.6%. definition: Tobit | Meaning, pronunciation, translations and examples “Even though TOBs are an attractive way to finance munis, potentially, because of the level of financing, you have a supply disconnect,” another TOB participant said. He noted, for instance, that ratios are a little higher now than they were three years ago when TOB structures were booming. This would be the code used in international transactions to and from Bouvet Island bank accounts, though as the island is uninhabited, this is unlikely to be used. Finance TOB abbreviation meaning defined here. However, if market dynamics remain this auspicious, MMA’s Fabian suggested that even with moderate leverage the program could be influential in taking supply out of the market and pushing down yields, which would be a boon to issuers struggling with their finances. Though the 30-year ratio is lower than last decade’s average, McCarthy said the ratio trade is still attractive now from a long-term perspective. The easiest way to define finance is by providing examples of the activities it includes. As the accompanying chart indicates, for instance, a typical TOB trade in March 2007 might use six times leverage to deliver an annual return of 9.6%. See more. By taking long-term tax-exempt debt out of the market, BABs are constraining tax-exempt supply, thereby lowering yields. Personal finance, corporate finance, and public finance all fall under the umbrella of this broad term. Finance definition, the management of revenues; the conduct or transaction of money matters generally, especially those affecting the public, as in the fields of banking and investment. The trust then creates two notes, a floater certificate, or senior note, a... En la literatura sobre TOB investors were paying short-term rates shot to record highs such... 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