The Tender Option Bond market will surpass USD 200 billion in 2006 according to Bryan R Williams, Managing Principal of Rockwater Hedge, LLC.
Tender Option Bonds (TOB) are bonds coupled with the option to offer the securities to a bank, broker-dealer or other financial institution at periodic intervals. The TOB structure allows the tax-exempt characteristics of the underlying municipal bond to be passed through to the municipal arbitrage investor and the tax-exempt money fund investor.
According to JP Morgan Securities, TOB trading grew from USD 9 billion in 1996 to as high as USD 150 billion in 2005.
'This expected growth will continue to drive municipal arbitrage investing strategies,' says Williams. 'We are seeing increased investor demand for this strategy because of its tax efficient nature and ability to perform well in a rising interest rate environment.'
Bacground notes: Rockwater Hedge, LLC, is an investment management and advisory firm, offering sophisticated municipal bond investing strategies for high net worth individuals and institutional investors. Bryan Williams, Founder and Managing Principal of Rockwater, developed the Rockwater Arbitrage Muni (RAM) proprietary sub-fund classification system and is a pioneer in the municipal arbitrage trading strategy with 25 years of experience in investment management.
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