What do we mean when we say visible supply?
Visible supply is the total amount of available commodities stored or in the process of transportation that people can readily buy or sell. When we say commodity, it refers to raw materials or agricultural products that people can buy or sell, like copper or coffee.
Visible supply is an essential element because it evaluates the total amount of commodities that people can purchase or deliver when the futures contract assignment arrives. It indicates the market’s supply side.
Also, the 30 days visible supply means every newly issued municipal bond’s total face value that will arrive in 30 days.
A glimpse on a futures contract to further understand visible supply
Now, what is a futures contract? It refers to a legal agreement between a buyer and a seller to trade a specific commodity asset or securities at an agreed price and time in the future, hence the name futures contract. In facilitating a futures exchange, their quantity and quality are standard. Buyers should buy and take the assets at the date of expiry. On the other hand, sellers should supply and deliver the asset on the date of expiry.
The laws of supply and demand and visible supplies
In economics, the law of supply and demand states that supply will always affect the demand for a commodity or products and vice versa. So, it means that the supply is a crucial element for a market. When a visible supply increases, it is a bear market signal. When it decreases, it is a bull market signal.
Visible supply doesn’t precisely influence the pricing. Why is that? People buy commodities like coffee, copper, wheat, or oil through futures contracts, options, or forward contracts before the actual delivery date.
It is now more evident that visible supply doesn’t affect the pricing but the future supply. Future supplies are the ones that are still being prepared or processed. We can also say that these future supplies are invisible supplies since we cannot even count them yet.
A glimpse of invisible supply to further understand visible supply
As mentioned earlier, invisible supplies are physical stocks that we cannot count yet since they are not available. People are still preparing and processing them, but they will be available in the future. When they become available, we can consider them as visible supplies because they are already tangible, storable, and countable.
Let’s talk about municipal bond markets
There is a term called 30-day visible supply that estimates the status of newly issued municipal bonds. It also indicates the expected new debt’s price.
So, how can municipal bond industry members access this information? There is a publication called “The daily bond buyer.” They publish the 30-day visible supply and offer real-time market data, albeit over 100 years old.
Today, people can access this through subscribing in their modern version.
So if a visible supply of bonds rises, it is a bearish signal for pricing because the bonds will have more new debts. Also, if a visible supply of bonds declines, it will be bullish for bond prices.