Bond Flipping

According to market trading information, most trades in the municipal bond market occur between 1 and 30 days after the initial pricing.  Bond flipping occurs when an underwriter sells a block of bonds to a favored or preferred institutional customer who, instead of holding the bonds as an investment, immediately sells them to other buyers (presumably retail investors) at a substantial profit.  Each time the bond is “flipped,” the yield is lowered and the price is increased.   If premium sales occur at or around issuance, with no underlying change in the credit of the issuer or market interest rates generally, the activity may impact the issue price that the issuer reports to the IRS on its information filings.  Flipping of bonds suggests that the bonds were not initially sold at the lowest possible yield and results in higher costs to the issuer than was actually available in the market.