A 4% increase in the par amount of municipal securities traded in 2020 came as a surprise following a volatile year and record year in municipal bond issuance.
This past year the municipal market had about $3.1 trillion dollars in total par amount traded compared to approximately $3 trillion dollars in 2019, according to the Municipal Securities Rulemaking Board’s 2020 Fact Book released on Wednesday.
“The total dollar volume of secondary market transactions rose relative to 2019, but I was expecting a bigger increase,” said Michael Decker, vice president of policy and research at the Bond Dealers of America. “I thought with all of the volatility last March and April and all of the fallout of the pandemic, we might have seen a bigger spike in trading volume.”
2020 was a record year in municipal bond issuance with a volume of $474 billion and over 12,000 deals.
“We had a record year for issuance,” Decker added. “It was a strong year for trading volume, but I would have thought with the volatility in March and a very strong year for new issues, we would have seen a bigger spike in trading volume.”
The MSRB also found in its 2020 report that disclosures provided to the municipal market on an ongoing basis increased by 4.2% over the past year, buoyed by event-based disclosures such as changes in ratings and bankruptcy.
Continuing disclosures increased to 156,847 in 2020, up 4.2% from 2019, the MSRB said. Event-based disclosures increased 15.2% in 2020, mainly driving that overall increase.
The MSRB also found that the total number of transactions and par amount trades in taxable municipal bonds increased significantly compared to 2019 levels which can be attributed to a spike in taxable issuance in 2020.
This past year had a 9.8% increase in taxable security trades to 676,248 trades and accounted for about 8% of all municipal securities traded in 2020. The par amount of taxable securities traded increased 52.9% to $441.9 billion, accounting for 14.1% of total par amount traded.
“The increase in taxable trades and par amount traded accompanied a spike in taxable issuance in 2020,” said Marcelo Vieira, MSRB director of research. “As noted in our review of the municipal bond market in 2020, taxable issuance in 2020 was more than double that in 2019, driven in part by issuers taking advantage of the low-interest rate environment to refund outstanding tax-exempt debt with taxable debt.”
This past year had a decrease in trades of $100,000 or less, typically associated with retail investors, down 3.9% in 2020 compared to 2019. Institutional trades — trades of over $1 million — increased 5.3%.
That trend is in line with years-long shift away from the traditional household purchases of munis.
Last week the MSRB published a report finding that customer purchases of fixed-rate, tax-exempt municipal securities of $100,000 or less decreased by 46%. Meanwhile, institutional-sized purchases of over $1 million increased 46% in the same time period.
Increased regulation in how firms treat their retail clients has encouraged firms to move client money from transactional accounts to discretionary accounts.
Clients have then been moved to discretionary platforms like separately managed accounts, sources said.
