Forward-delivery bonds offer extra yield to investors to compensate for the risks associated with waiting months to get your bonds. Rai, the Citigroup analyst, estimates the premium is about 3 to 4 basis points per month, meaning the further out the settlement date, the higher cost of selling the debt.
Illinois’s Metropolitan Pier and Exposition Authority sold about $811 million forward delivery bonds in July to take advantage of “favorable” interest rates, said Jason Bormann, chief financial officer of the agency. A bond that matures in 2052 priced at a yield of 97 basis points over the Bloomberg BVAL benchmark, according to data compiled by Bloomberg. It generated $140 million of present value savings, the authority said. The bonds won’t be delivered to investors until March.
“I don’t see the demand changing on the issuer side unless the advance refund rules change,” Bormann said.
—With assistance from Skylar Woodhouse.
This article was provided by Bloomberg News.