We have developed a technological solution for fixed income portfolio management, including the management of fixed income bonds like municipal bonds, enabling faster and more efficient portfolio construction and analyses. Our state of the art software is designed to reduce time, costs and resourcing for asset management firms and client managers eager to reach and exceed fixed income portfolio objectives. Using BondIT, fund managers can develop workable rebalancing options and investment strategies in a matter of minutes rather than hours, delivering actionable and compliant fixed income fund proposals faster. Our technological solution is data agnostic, enabling firms of any size the ability to seamlessly integrate our platform with compliance, reporting and execution systems to deliver strategic investment proposals instantly.
What are municipal bonds?
Municipal bonds – also known as ‘muni’ bonds – are fixed income investment opportunities issued in the form of debt securities by states, municipalities or counties to finance capital expenditure projects. These kinds of bond fund projects include large infrastructure construction including highways and schools, as well as the development or upgrading of other public services like hospitals, water treatment facilities, etc. Investing in municipal bonds is particularly attractive for investors in high income tax brackets looking for secure fixed income assets. When you buy municipal bonds, you are essentially extending loans to local governments in the United States in the form of individual bonds and the interest income generated from these fixed income options is usually exempt from federal taxes as well as remaining tax-free in most states and local governments. This makes them ideal revenue sources, often returning cash flows from either the project itself (such as tolls paid by road users) or providing cash flows generated from collected taxes.
There are two types of municipal bonds in the municipal market: a general obligation bond (GO) and a revenue bond. A municipal bond can be issued by a non-profit organization, a private sector corporation or other governmental entities. They are categorized by the source of interest payments they generate and by principal repayments. Depending on how the municipal securities are structured, a municipal bond may be subject to both federal government and local taxes.
Governmental entities issue bonds known as general obligation bonds and these will not be backed by specific revenue streams like tolls collected for the use of a public road. Some GO bonds will be backed by dedicated property taxes while others are payable from general funds available to whichever entity has issued them. If there are problems with the bond issuer being able to meet their payment obligations, then this is usually addressed by raising taxes like property tax to cover the costs or finding some other way to generate the income they need. They may have to sell governmental assets to cover costs. If they default on a payment, then that default risk is managed by the judiciary. A judge has the power to order the GO bonds issuer to take corrective action and find a way to settle their debts with their bond holders.
Revenue bonds are structured differently, distinguishing themselves primarily through their method of payment. While GOs will rely on taxation, a revenue bond is guaranteed by specific revenues generated by the issuer. For example, if new transportation systems are earmarked for New Jersey then the governing entity responsible for sourcing the funding required to create those transportation systems may issue revenue bonds to investors to cover the cost of the capital expenditure. These bonds will cover costs related to the purchase of new transportation vehicles and/or the infrastructure required to support them. Bond holders are then guaranteed payment directly from the revenues generated by the new transport systems in the form of ticket sales and general usage. Similarly, revenue bonds may be issued by the governing authority responsible for maintaining and administrating water, power and sewer services. As essential services, just like public transportation, revenue bond investors can usually feel secure that payments will be met, and they will generate income from these types of bonds. Most people will pay their water, power and sewer bills as they are considered vital services for a modern society and life would be significantly harder without regular, unhindered access to these services.
A slightly riskier municipal bonds example might be a local hospital in, say, New York. Hospitals may also issue municipal bonds to cover the cost of construction or upgrading equipment. The payments for their bonds may be guaranteed by revenue generated from providing medical services but if that revenue is insufficient to cover their obligations, either in repaying their bonds or in the interest owed to bonds investors, then it’s not quite so simple to redress the imbalance. Costs for medical treatment cannot simply be increased and, if they were increased to cover the shortfall, then that may only result in even fewer patients using that hospital in favor of lower cost medical treatment at alternative facilities. The credit risk for these types of bonds if therefore more insecure. When a water authority increases general usage costs for its customers, there is usually no other alternative available for consumers to turn to so they must simply absorb the cost increase. Hospitals are not the same with alternative treatment centers available to patients seeking lower cost care.
Corporate bonds to buy are issued by private companies seeking funds to expand things like research and development opportunities. They guarantee the payment of these bonds with sales, operations and other assets that they may own but these types of bonds are typically higher risk than municipal bonds. Of course, higher risk will usually translate into higher returns. The corporate bond
s market may therefore be attractive for investors and clients seeking ways to fund their children’s college tuition costs or fund their own retirement. The potential high yield of corporate bonds may outweigh the risks and investors may rate bonds based on this potential rather than seeking more secure, lower paying fixed income instruments.
Essentially, deciding what type of fixed income trade works best, such as whether municipal bonds are an appropriate investment option, is dependent upon the investor’s understanding of the inherent risks and possible revenue they may generate. While taxation backed munis may look more secure on paper, the financial return may be lower than higher risk revenue munis. As fixed income securities managers, financial advisors, portfolio managers, and private bankers have a tough task presenting all viable investment options to their clients. That’s where BondIT can help.
Traditionally, bond fund management and fixed income investment strategies have been devised by portfolio managers by hand using internally created systems and workflows or offline spreadsheets. The tedious task of generating viable fixed income high yield investment proposals has traditionally taken hours to build, increasing the strain on costs and efficiency. Rather than maintaining control of changing market conditions, portfolio managers have had to spend much more time developing portfolio optimization strategies. BondIT takes that strain directly offer the shoulders of fund managers.
We offer asset management software that digitizes fixed income analytics to return instantly workable fixed income risk analyses. As an API-first platform, our software solution includes a full set of API’s to perform all portfolio management tasks, including optimization. We have designed our asset management tools to be data agnostic so managers and financial advisors can leverage BondIT’s optimization engines from within the systems that they currently use. Seamless integration is achieved through intelligent design, seeking to increase the efficiency of workflows and free up valuable resourcing time and capacity. Client managers can spend more time doing what they do best while portfolio managers can concentrate on developing faster and more efficient investment strategies.
BondIT can be accessed anywhere and anytime without any further software licencing obligations. You use BondIT your way and when you need it, relying on powerful insights driven by intuitive data management and efficient workflows. Our Intuitive User Experience is specifically designed to ensure that everyone who uses BondIT achieves the same functionality and powerful investment management, delivering income asset management strategies which return real results for investors, increasing total return. As a data agnostic system, it integrates with any enterprise system cleanly and efficiently, as well as any portfolio management workflow. This makes it an agile system capable of delivering results for every manager using any system.
The optimization algorithms within BondIT’s bond allocation software are enhanced by machine learning, working in tandem with managers to consistently deliver trade opportunities and portfolio repositioning solutions generated with amazing speed. These solutions are curated using portfolio risk analytics which support real-time decision making. You support and manage your portfolios quickly, responding faster to changing market conditions and evaluating potential optimization strategies with lightning speed.
We have created the solution to a twofold problem faced by all asset and wealth management firms. The first part of this problem is business management: asset and wealth management firms face ongoing margin compression from fee erosion, regulatory pressure and increasing competition. The answer is to rapidly and radically improve productivity and efficiency. Automating workflows wherever possible chops down on time and wasted resourcing which is why BondIT is able to deliver instant efficiency. But we offer you more than just automated workflows. We actively support your business productivity and efficiency by delivering scaled access to new technology-driven distribution channels, harnessing the power of machine learning to maintain fast and efficient solutions.
The second part of the problem is fixed income portfolio management, including municipal bonds portfolios, which remains the most expensive part of the customer value chain. With BondIT, you can manage portfolios better and more cheaply using the power of technological solutions.
BondIT Walkthrough – Platform Introduction
Watch an introduction to the BondIT asset management platform.