Maturity by Maturity Bidding (MBM)
Maturity by maturity bidding refers to a bond auction mechanism that allows bidders (who are often the issue's underwriters) to submit bids for selected maturities in the issue, rather than requiring buyers to bid for the entire issue on an all-or-none (AON) basis. Maturity by maturity bidding refers to a bond auction mechanism that allows bidders (who are often the issue's underwriters) to submit bids for selected maturities in the issue, rather than requiring buyers to bid for the entire issue on an all-or-none (AON) basis. If, however, a municipal bond issue contains bonds of differing maturities (e.g., 1 year, 3 year, and 5-year notes), a maturity by maturity bidding mechanism can allow certain bidders to identify those maturities only that they would bid for. Maturity by maturity (MBM) bidding lets bond buyers select parts of a bond issue to purchase based on maturity. in maturity-by-maturity bidding, a bidder may bid on less than the entire debt offering that is up for sale.
What Is a Maturity by Maturity Bidding (MBM)?
Maturity by maturity bidding refers to a bond auction mechanism that allows bidders (who are often the issue's underwriters) to submit bids for selected maturities in the issue, rather than requiring buyers to bid for the entire issue on an all-or-none (AON) basis.
Understanding Maturity by Maturity Bidding (MBM)
in maturity-by-maturity bidding, a bidder may bid on less than the entire debt offering that is up for sale. This gives smaller underwriting firms more flexibility, allowing them to bid for part of the issue. While uncommon in general, this type of bidding is most often seen in the issuance of municipal bonds ("munis").
Many municipal bonds as well as the U.S. Treasury use a Dutch auction structure to sell securities. A Dutch auction is a market structure in which the price of something offered is determined after taking in all bids to arrive at the highest price at which the total offering can be sold. In this type of auction, investors place a bid for the amount they are willing to buy in terms of quantity and price.
Most auctions require the participants to bid for the entire issue. If, however, a municipal bond issue contains bonds of differing maturities (e.g., 1 year, 3 year, and 5-year notes), a maturity by maturity bidding mechanism can allow certain bidders to identify those maturities only that they would bid for.
Related terms:
Auction House
A company that facilitates the buying and selling of assets, such as works of art and collectibles. read more
Auction Rate Security (ARS)
An auction rate security (ARS) is a variable-rate security sold to investors through a Dutch auction at the lowest interest rate possible. read more
Auction
An auction is a sales event where buyers place competitive bids on assets or services. Read the pros and cons of buying and selling through auctions. read more
Bid Wanted
"Bid wanted" refers to an investor's announcement that the investor is selling a security, telling interested parties that they can send in bids. read more
Bid-to-Cover Ratio
The bid-to-cover ratio is the indicator of the demand strength for Treasury securities and is determined by comparing the number of bids received in an auction versus the amount sold. read more
Bill Auction
Treasury bills are issued in electronic form through a bill auction bidding process, which is conducted every week. read more
Dutch Auction
A Dutch auction is a public offering auction structure in which the price of the offering is set after taking in all bids to determine the highest price at which the total offering can be sold. read more
Maturity
Maturity refers to a finite time period at the end of which the financial instrument will cease to exist and the principal is repaid with interest. read more
Underwriter
An underwriter is any party that evaluates and assumes another party's risk for a fee in the form of a commission, premium, spread, or interest. read more