Technology and data create new opportunities
It’s a sector which underpins the financing of U.S. public infrastructure and forms the cornerstone of many retirement portfolios. Now, the $4 trillion U.S. municipal bond market is poised to undergo some fundamental shifts - with new technology and data creating opportunity for issuers and investors.
Munis are difficult. The market is known to be highly fragmented, with most of the one million bonds originating from smaller issuers such as local school districts or hospitals. Financial data on issuers can be scarce, dated, and not standardized. Generally, many issuers lack the latest technology and data that not only drive workflow efficiencies, but also inform them on trends in the muni market.
Yet structural changes are taking shape. Digitization is boosting transparency and execution efficiency. Technology is helping to address information asymmetry. And alternative datasets can help inform a better understanding of municipal issuers.
ICE has been investing to address muni market challenges since 2015, building on a history of digitizing markets and providing quality data. This year ICE invested in BondLink, a fintech company that’s powering the go-to-market process for some of the biggest issuers in the municipal market. BondLink’s end-to-end suite of tools are designed to help public sector CFO’s engage with bond investors directly like their counterparts in the corporate markets; communicate updated financial reports to the market on a near real-time basis; and make disclosure filings more efficient.
BondLink can help issuers be more transparent to the market, and make the market more transparent to issuers so they are more prepared to access capital. In addition, its platform provides critical market data sets so that issuers can understand the market for their bonds, including secondary market trades, interest rates and bond valuations, .
This streamlined distribution and consumption of data can make it easier for issuers to increase their bond sales and investors feel more confident in their purchasing decisions.
In addition, market participants are increasingly seeking to understand the potential social impact of their investment - a trend that has clear application in the muni market, given proceeds are used to build parks, schools, libraries and other vital public infrastructure.
In response to increased demand for this information, ICE teamed with risQ, a startup focused on geospatial climate, economic and demographic data, to offer its clients risQ’s Social Impact Scores. These scores are designed to help users understand the potential social benefit of a financial investment in a community, with higher scores indicating that a investment is expected to have a larger social impact. The Social Impact Scores are mapped to ICE’s U.S. municipal bond reference data and the underlying securities, providing an additional metric for customers to use when evaluating an investment or a portfolio.
In a similar vein, the growth of alternative datasets - which can provide insights to muni issuers - may affect access to funding and issuance pricing.
ICE’s alternative datasets provide information on climate risk and demographic trends in a given municipality. Our climate risk data provides market participants with information relating to risk exposure events like flooding, hurricanes and wildfires. ICE’s newest dataset, ICE Workforce Demographics, integrates municipal bond Reference Data from ICE with location specific, anonymized and aggregated demographic payroll data from ADP that may help with added transparency to the municipal bond market. With this data, market participants can further assess demographic factors impacting different geographical locations based on current and historical data provided by ADP.
The application of these datasets means investors can benefit from greater knowledge of potential risks and opportunities. Meanwhile, issuers with “clean” risk profiles may be incentivized to disclose this type of data - with the hopes it may help with better funding access and deal pricing. This dynamic could spotlight less-transparent issuers by their omissions.
It’s an exciting time for the muni market. The pace of change is accelerating with technology and data access, with positive implications for investors and issuers alike. As a leading provider of data and technology, we’re committed to supporting greater transparency and more informed market participation.