Municipal bond trading volumes are on a downward march. The Municipal Securities Rulemaking Board (MSRB), which oversees muniland, publishes trade statistics on its website. You can see on the chart below, which shows daily trade volumes, how “customer bought” trades especially have been trending down. These are trades done by retail and institutional clients to acquire bonds.
“Customer sold” trades, which generally represent funds or brokers selling bonds out of client accounts to be replaced with other bonds, have been relatively steady. Bonds are sold to raise cash and to move assets to other classes. Interdealer trades are done between dealers to transfer bonds that are sold onto clients who are not dealers (think retail and institutional investors).
There are several reasons for declining trade volumes, but foremost is the very low level of yields on municipal bonds today. Taylor Riggs of the Bond Buyer, who reports dealer trading desk activity, tweeted this on Tuesday:
— Taylor Riggs (@TaylorRiggs_BB) September 11, 2012
With very low yields there is not much “spread” — the difference between the bid and offer price — for dealers to capture. The market effectively becomes more sluggish because there is less incentive for brokers and dealers to search out trades. Investors would usually prefer to wait on the sidelines for higher yields before getting back in the market.