Prices of Texas municipal bonds
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How do I understand the pricing of a Texas municipal bond listed at, say, 102, given the possible state tax benefits from municipal bonds? Does that imply paying $1020 for a $1000 face value, and what elements affect this pricing?
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A Texas municipal bond priced at 102 signifies you're paying $1,020 for a $1,000 face value bond, known as buying at a premium. This typically means the bond's yield is below its coupon rate.
Factors Influencing Pricing:
Several elements affect this pricing, including prevailing interest rates, the bond's credit quality, its maturity date, and market supply and demand. The bond's tax benefits also play a crucial role, as they can enhance its appeal.
Your ultimate after-tax return hinges on both the bond's tax-exempt status and its yield to maturity relative to its purchase price.