TOBs: More Than Meets the Eye

John Vetter and Steven M. Hlavin

Municipal Finance Journal, 2020, vol. 40, issue 4, 109 - 136

Abstract: After nearly becoming extinct under the Volcker Rule, the tender option bond (TOB) market has made an impressive comeback, as both Wall Street and Main Street have found a new path to finance bond positions. Now, the Volcker Rule is under consideration for relaxation such that TOBs may benefit from deregulation. At the same time, tax reform has affected borrowing and investment strategies alike. Given the importance of this sometimes opaque market in absorbing municipal bond supply and the involvement of mutual funds, banks, hedge funds, and a variety of issuers and credits, it is imperative that municipal analysts understand how and why TOBs exist.

Date: 2020
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