How muni trading ended up in an eventful year

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PHOENIX – The municipal market weathered an eventful 2017 without experiencing any drastic impacts on trading activity despite tax reform anxieties driving a late bump in secondary market trading, according to the Municipal Securities Rulemaking Board's annual market data report.

The MSRB published its annual Fact Book of market data Wednesday, revealing a picture of a market that held fairly steady both throughout the year and compared to 2016.

The par amount of municipal securities traded in 2017 declined 5% to $2.98 trillion from $3.14 trillion the previous year, and the number of trades rose 6% to 9.9 million from 9.4 million in 2016.

After a year-end “rush to market” as issuers sought to close advance refunding deals ahead of the effectiveness of tax reform legislation that would prevent those transactions, the MSRB’s data showed more of a molehill than a mountain when it came to secondary market activity. The average daily par value traded was $12.9 billion in the final quarter of last year, a sizable jump from $10.5 billion in the third quarter but not much more than the $12.4 billion average in the first quarter.

“Secondary market trading in municipal securities remained steady during an eventful year for the market,” said MSRB director of research Marcelo Vieira. “The policy discussions surrounding tax reform and infrastructure finance that drove municipal issuance at the end of the year registered only slightly in year-end secondary market trading data.”

The MSRB highlighted the education sector as particularly noteworthy.

“Already the most active sector in the municipal market, trading in bonds issued to finance education-related projects has increased 42% since 2014 to a total of $1.56 billion in 2017,” the MSRB said in a release. “Increased trading activity in the education sector has contributed to a rise in the total par amount traded of fixed rate securities, which is up 15% since 2014.

The data showed a drop in the number of MSRB-registered dealers, a 7% shrinkage to 1,346 from 1,448 the previous year. There were 1,705 in 2013.

Most other market data points were fairly consistent compared to recent years, with the par amount of revenue bonds traded far outstripping general obligation debt. Wednesdays averaged the greatest number of trades at 43,378, while Thursdays averaged the greatest par amount at $14.7 billion.

Puerto Rico bonds were the most actively traded securities, with 5,361 trades. Texas and Illinois state debt were the next most frequently-traded munis, both at 3,655 trades, according to the MSRB report. More than 19,000 of the daily average of just over 39,000 trades occurred in amounts of $25,000 or less, which is consistent with prior years.

All data in the Fact Book are based on information submitted to the MSRB by municipal securities dealers, issuers and those acting on their behalf. The MSRB said in a release that the Fact Book is intended to provide ”comprehensive and historical statistics on municipal market trading patterns, primary market and continuing disclosures among other data,” and serve “as a resource for analysts, policymakers and others interested in disclosure and trading trends.”

Much of the data can be accessed via the MSRB’s EMMA website.

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