Lumesis adds real-time taxable spreads to platform


Lumesis has launched two enhancements to its Secondary Market Pricing Platform with the addition of a yield and spread calculation of taxable term bonds and the inclusion of real-time taxable spreads.

Lumesis said for taxable term bond transactions, the firm now calculates an average life yield, or cash-flow yield, which considers all cash flows of a term bond as opposed to simply the bond’s yield to maturity.

This also allows for the determination of the most appropriate benchmark Treasury rate and the calculation of an accurate spread, the firm said.

The Secondary Pricing Platform will now calculate the spread to Treasury based on the appropriate Treasury benchmark bond rate that existed at the time of the muni bond transaction, as opposed to end of day. Gregg Bienstock, CEO Lumesis

The firm has brought on Kalotay Analytics’ quantitative libraries to calculate certain metrica, including average life dates and cash-flow yields for taxable term bonds.

Given trading professionals have differing needs regarding yield and spread calculation methodologies, the Lumesis platform will continue to offer, for taxable term bonds, spreads calculated using the yield reported by market participants through the Municipal Securities Rulemaking Board’s RTRS.

“After speaking with clients using the Secondary Pricing Platform trading taxable munis, we found that the market does not have a single convention for calculating taxable term bond yields and spreads. This provided us an opportunity to partner with Kalotay Analytics to further meet our clients’ needs,” said Tim Stevens, president of Lumesis.

“Andy and his team have been providing market-leading quantitative analytical solutions and insights for years. This is the first of several planned enhancements to the DIVER Secondary Pricing Platform and the DIVER New Issue Pricing and Scales Service that will leverage the capabilities provided by Kalotay Analytics.”

Lumesis said it is also refining and enhancing how it calculates spreads for taxable munis. The Secondary Pricing Platform will now calculate the spread to Treasury based on the appropriate Treasury benchmark bond rate that existed at the time of the muni bond transaction, as opposed to end of day.

This enhancement levers Lumesis’ real-time data processing capabilities and provides users of the DIVER Secondary Pricing platform — traders, asset managers and analysts — with spreads that consider up-to-the-minute movements in Treasury rates, delivering the most accurate market and pricing information available.

An example of how it works. The firm looks at a California taxable Series 2009 various purpose general obligation bond with an ultimate maturity date of 11/01/2039. Based on its mandatory sinking fund payment schedule, that bond has an average life date of 3/11/2037, per Kalotay Analytics.

Per the MSRB’s RTRS, that particular bond had a trade occur on July 28 at a price of 163.697 and a 2.850% yield. At the time of that particular trade, the 30-year Treasury bond that would be used to calculate a spread, was trading at a yield of 1.925%, resulting in a spread of 92.5 basis points.

“In this case, we have calculated a spread using what we call the MSRB Method, which utilizes the MSRB quoted yield (which, for purposes of calculating a yield to maturity, assumes all principal cash flows for the bond occur on the maturity date),” Gregg Bienstock, CEO of Lumesis said.

Alternatively, the firm now allows its clients to evaluate trades using what they call the Average Life Method, in which case they feed data associated with the bond and the trade into the Kalotay Analytics engine to calculate a new yield for the trade‚ an average life yield.

“For the example trade provided, the dollar price of 163.697 results in an average life yield of 2.418% and a spread to the Treasury benchmark of 49.3 basis points,” Bienstock said.

“These improvements are critically important to trading professionals that make a living buying and selling taxable muni bonds and demonstrate our continued commitment to listening to clients and the market to deliver solutions responsive to their needs,” Bienstock said. “The Secondary Market Pricing Platform provides traders, asset managers and analysts insights and data they simply did not have access to in the past — key metrics as well as comprehensive transparency.”

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