Number of Trades Stayed Mostly the Same in 2011

WASHINGTON — The number of municipal securities that traded in 2011 remained largely unchanged from 2010 and the volume of trades of less than $100,000 rose during the period, suggesting that more retail investors may be buying and selling municipal bonds.

The Municipal Securities Rulemaking Board’s 2011 Fact Book, released Wednesday, shows there were 10.4 million municipal security trades in 2011, down slightly from 10.5 million in 2010.

But the total par amount traded in 2011 fell more than 12%, to $3.28 trillion in 2011 from $3.75 trillion in 2010. Average daily trade size of customer transactions dropped by 10.6%, to $386,875 in 2011 from $432,739 in 2010.

Marcelo Vieira, director of research at the MSRB, said the data suggests more activity by retail investors, whose transactions are usually smaller than those of institutional investors.

Regulators and the industry typically view retail trades as those of $100,000 or less. In 2011, trades of $100,000 or less accounted for 8.3% of total par value traded, up from 7.4% in 2010, according to the Fact Book.

“[The data] supports the idea and the notion that retail investors are participating more in the market. … If you assume that trades of $100,000 or less are more retail-oriented, you could make the case there is more retail participation,” Vieira said.

Michael Decker, managing director and co-head of municipal securities at the Securities Industry and Financial Markets Association, said declining trade size and flat trade numbers may also result from the recent decline in the number of new issues.

Long-term municipal bond issuance declined 32% by par value between 2010 and 2011, according to Thomson Reuters.

“The typical trading pattern is that there’s a lot of trading after a bond is issued. Then [the bond] finds its way into portfolios, and doesn’t trade as much after that,” Decker said. “The less new-issue volume there is, the less trading volume there is.”

Decker said many bonds have also recently been bought directly by banks, and held in banks’ portfolios.

“There is very little trading of those bonds,” he said. “They get placed and stay there for an extended period.”

As in 2010, roughly two-thirds of munis traded in 2011 were revenue bonds and about one-third were general obligation bonds. There were 316,672 trades of double-barrel bonds and 24,812 trades of other municipal securities in 2011, including municipal commercial paper.

The number of taxable trades fell sharply from 1.15 million in 2010 to 752,677 in 2011, down 34%. 

Vieira wasn’t surprised at the decline, noting that the Build America Bond program, under which the Treasury makes subsidy payments to issuers equal to 35% of their interest cost, expired at the end of 2010.

The most heavily traded bonds in 2011 by number of trades were the New York Liberty Development Corp.’s revenue bonds, which traded 8,371 times, and California’s Series A-2 revenue anticipation notes, which traded 6,836 times, according to the Fact Book. Illinois pension funding series GOs, Chicago Series 2010 C-1 GOs, and Hudson Yards Infrastructure Corp. fiscal 2007 Series A revenue bonds each traded more than 5,000 times during the year.

The industry still hasn’t rebounded from pre-recession levels. There were 5% fewer trades in 2011 than the high of nearly 11 million in 2008, and 51% less volume by par amount than the high of $6.7 billion in 2007. 

Data in the Fact Book includes information submitted to the MSRB by municipal securities dealers, issuers, and those acting on their behalf. The book includes monthly, quarterly, and yearly information from 2007 to 2011, and is available free of charge on the MSRB’s website.

For reprint and licensing requests for this article, click here.
Buy side Washington
MORE FROM BOND BUYER