Method of sale in the municipal bond market

This chapter discusses the chief differences between the two main methods of sale in the municipal bond market, competitive bidding, and negotiated. Also described in this chapter is how these differences may affect issuer’s decision over which method to choose. In a competitive bidding, the issuer solicits bids from underwriters. As predicted by theory, the relationship is positive with more revenue bond issuance leading to a larger market share for negotiated issues. Refunding bond share also can explain some of the changes in the share of negotiated issues, especially in years when there was a substantial increase in refunding bond share. Regardless of the economic effects, there exists concern regarding the political and ethical propriety of using the negotiated method of sale. Therefore, the ultimate decision of which method of sale to use may be reduced to a balancing of concerns for those issues who might benefit from using negotiated issuance.