What Is Visible Supply?
Visible supply represents the amount of a good or commodity that is currently in storage or transit and available for purchase or sale. This measure is important as it provides a concrete quantity of goods available for procurement or delivery when futures contracts are assigned. For example, all the wheat stored in granaries or transportation from farms constitutes a part of the visible supply.
In municipal bond markets, the 30-day visible supply denotes the total par value (face value) of all new municipal bond issues expected to hit the market within the next 30 days.
Key Takeaways
- The visible supply indicates the quantity of a good or asset available for sale or is en route to be available.
- In securities markets like municipal bonds, visible supply points to the total volume in dollars of municipal bonds with maturities of 13 months or more anticipated to enter the market over the upcoming 30 days.
- Visible supply serves as a telltale sign of the supply side of the market.
Understanding Visible Supply
Market prices are generally governed by the law of supply and demand - a larger supply of a particular good tends to reduce its demand, and vice versa. Thus, keeping track of the supply of commodities is incredibly significant for these markets and their associated futures markets. Typically, an increase in visible supply is viewed as a bearish signal, while a decrease is seen as a bullish one.
It’s crucial to note that the price of a good isn’t exclusively influenced by visible supply. Since commodities such as wheat or oil are often purchased through futures, options, or forward contracts well before the actual delivery date, prices are more likely to be driven by future supply rather than the immediate availability. Future supply, or supply currently under processing, is considered part of the invisible supply as it can’t (yet) be accurately quantifiable.
Visible vs. Invisible Supply
Visible supply contrasts with invisible supply, which refers to an indeterminable amount of physical stock of a commodity that will eventually be deliverable upon settling a futures contract.
While the investment amount underlying a futures contract exists, it hasn’t been accumulated, stored, or earmarked for delivery yet. Conversely, any commodity stock accounted for is the ‘visible’ supply.
30 Day Visible Supply in Municipal Bond Markets
In the realm of municipal bonds, the 30-day visible supply is utilized to gauge the new issues market’s health, indicating the volume of forthcoming new debt. The 30-day visible supply is featured in respected trade publications like The Bond Buyer, which started as a daily newspaper and now offers sophisticated real-time market data via a digital subscription-based version.
An increase in the visible supply of bonds tends to be bearish for bond prices since more bonds will enhance the new debt supply. Conversely, a decline in the 30-day visible supply is bullish for bond prices.
Related Terms: Invisible supply, Futures contracts, Options contracts, Forward contracts.
