Third quarter trade count this year has remained steadily above the one million mark, a trend that the Municipal Securities Rulemaking Board said could be a fundamental change in the market after a few less than consistent years.
Trade counts increased 13% compared to the third quarter of 2023 and year-to-date average daily trade count is up 18% from 2023, already a record year for trade counts, according to the MSRB.
"Consider that prior to 2022, there had only been eight months with 1 million or more trades," the MSRB said in a third quarter market summary. "Could this be a fundamental change in the market, investors reacting to higher yields or a combination of both?"
New issue volume has also continued its upward trajectory, exceeding most analyst expectations with each month in the third quarter reaching over $40 billion in new issues. Total volume for the quarter hit $136.6 million, a 39% jump compared with the same period in 2023, with August reaching the largest issuance since 2020.
Year-to-date issuance was also up 35% from the same period in 2023, hitting $381.1 billion.
"New issue volume has likely been buoyed by issuers' desire to complete their deals prior to the presidential election in order to minimize uncertainty that the election could cause," the MSRB said. "Therefore, it is widely expected that new issue volume will remain strong in October but slow significantly in November and December."
Tom Doe, chief executive officer at Municipal Market Analytics noted in a recent post that in 2016 and 2020, 10 year yields rose 25 basis points from the end of August to the end of October.
Other metrics showed similar increases. Tax-exempt issuance was also up 39%, taxable issuance rose 27%, new money issuance was up 16% and refunding volume rose 145%. There was also a 57% increase for competitive deals and negotiated volume was up 40%.
"The increase in new issue volume likely was spurred by an end to COVID relief money for some issuers, a continued high level of tender offers in the market, and some large tax-exempt deals that refunded outstanding Build America Bonds," the MSRB said. "Another contributor to increased new issue volume could be issuers looking to complete deals ahead of the presidential election in November."
Inflows for tax-exempt mutual funds and ETFs became more consistent, with the third quarter through September 25 seeing mutual funds net inflows of almost $11 billion, with net inflows for ETFs at almost $6 billion.
Municipal holdings for banks and insurance companies also declined this year, on par with its downward trajectory. The MSRB notes that even Q2 data for such holdings is not yet available, but Federal Reserve data shows bank holdings down 3% and casualty and life insurance companies down 5% in Q1.
"Conversations with market participants confirm that banks and insurance companies continue to reduce their overall holdings, not by ramping up selling but mostly by allowing maturing securities to run off and be replaced by other assets," the MSRB said.
