Select GASB 67/68 Discount Rate Indices



GASB Statements 67 and 68, which govern accounting for pension benefits, are effective beginning in 2014.  One key item is the determination of the discount rate. When benefits are projected to not be paid by plan assets, a yield or index rate for 20-year, tax-exempt general obligation municipal bonds with an average rating of AA/Aa or higher must be used. 

The following graph shows quarterly rates for select municipal bond indices that likely meet the GASB criteria. We do not endorse any particular index and suggest these are not the only possible indices that may be used as the discount rate under these new accounting standards.  Links to the indices are included.









Description of Indices


Bond Buyer 20-Bond General Obligation Index
The 20-Bond Index consists of 20 general obligation bonds that mature in 20 years. The average rating of the 20 bonds is roughly equivalent to Moody's Investors Service's Aa2 rating and Standard & Poor's Corp.'s AA.  The indices represent theoretical yields rather than actual price or yield quotations. Municipal bond traders are asked to estimate what a current-coupon bond for each issuer in the indices would yield if the bond was sold at par value. The indices are simple averages of the average estimated yields of the bonds.
http://www.bankrate.com/rates/interest-rates/bond-buyer-20-bond-index.aspx

As noted on the announcement posted on September 26, 2016, the Federal Reserve Board ceased publication of the several interest rates in its Selected Interest Rates (H.15) statistical release effective October 11, 2016 including state and local bonds.  A list of sources for the discontinued data is available at: http://www.federalreserve.gov/releases/h15/h15_technical_qa.htm
Historical charts before 10/6/2016 are available here:  http://research.stlouisfed.org/fred2/series/WSLB20/

S&P Municipal Bond 20 Year High Grade Rate Index
The S&P Municipal Bond 20 Year High Grade Rate Index consists of bonds in the S&P Municipal Bond Index with a maturity of 20 years.  Eligible bonds must be rated at least AA by Standard and Poor’s Ratings Services, Aa2 by Moody’s or AA by Fitch. If there are multiple ratings, the lowest rating is used. http://us.spindices.com/indices/fixed-income/sp-municipal-bond-20-year-high-grade-rate-index

Bonds Online 20 yr AA
Municipal bond yields, 20-year, AA, Non-taxable, Data provided by ValuBond & BondsOnline. Website discontinued after 6/30/16:

http://www.bondsonline.com/Corporate_Bond_Yield_Index.php?fa=yield_curve&fileDate=9%2F30%2F2016&sector1=M_AA&sector2=&sector3=&sector4=&fa2=Export#

Fidelity General Obligation AA

Use:  Fixed Income Market Data/Yield Curve/Data

Municipal bonds include only federally tax-exempt municipal bonds.  A proprietary curve fitting model is used to capture yield levels across the entire maturity spectrum. This methodology enables the generation of a smooth curve capable of manifesting a rich variety of shapes, while maintaining yield stability from day to day.  The municipal curves are constructed using option adjusted analytics of a diverse population of over 10,000 tax exempt securities. Market data is provided by Interactive Data Solutions Inc
https://fixedincome.fidelity.com/ftgw/fi/FIResearchMarkets?sid=2

Bond Buyer 11-Bond General Obligation Index
The 11-Bond Index consists of 11 general obligation bonds that mature in 20 years. The rating of each bond is roughly equivalent to Moody's Investors Service's Aa2 rating and Standard & Poor's Corp.'s AA.  The indices represent theoretical yields rather than actual price or yield quotations. Municipal bond traders are asked to estimate what a current-coupon bond for each issuer in the indices would yield if the bond was sold at par value. The indices are simple averages of the average estimated yields of the bonds. Information is no longer available without subscription.
http://www.bondbuyer.com/marketstatistics/search_bbi.html?details=true

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