Key Points

• Fideres’s research on bond market manipulation has been published by the American Bar Association.
• 80% of issued bonds are underwritten by just Six dealer-banks, giving them the market power to manipulate prices.
• One manifestation of this power is the undervaluation of initial bond listings. Dealer-banks may preference themselves and their clients with lower bond prices at the initial listing of a bond, which the market subsequently corrects.
• In the case of municipal bonds, we observe that, on average, prices increased by 163 basis points after issuance between 2006 and 2015, compared to underwriter’s own bonds which increased by just 55 basis points after issuance.
• We estimate municipal bond issuers will wind up paying approximately $25 billion more in interest over the life off their bonds because of this mispricing.

You can read our full research here:

Underwriting in the US Bond Markets – Why the Status Quo Poses Risks to Competition