Munis traded at near-record levels this week due to surging supply and higher rates.
Robust supply has been met with very strong inflows into mutual funds and exchange-traded funds. And the lack of major market dislocations, combined with higher rates, is bringing dollars into the muni market.
"The reason the number [of trade counts] is a record and not just elevated is structural, and it's been building for years," said Josh Rosenblum, head of municipal trading strategies at Brownstone.
"Bonds come to market in block size, are divided across client accounts and, from that point forward, exist only as odd lots," he said, noting every subsequent transaction in those bonds is an odd-lot trade.
Separately managed account assets have seen exponential growth, which "mechanically raises the number of trades required to move the same amount of par," Rosenblum said.
As SMAs continue to take share, the baseline trade count rises concurrently, he noted.
Daily trades Tuesday through Thursday topped 90,000, with Wednesday boasting the second-highest total since at least 2006, with over 98,000 trades, according to the Municipal Securities Rulemaking Board.
The top number of daily trades was almost 113,000, on April 9, 2025, achieved during last year's tariff tantrum.
This week's higher trade count stems from the heavy post-Labor Day calendar arriving alongside a meaningful backup in rates, Rosenblum said.
"That supply drove secondary selling as accounts raised cash to participate, and at the same time the rate move pushed many positions through their loss-harvesting thresholds," he said.
"Technology has turned it into a continuous, rules-based process that runs systematically whenever the losses are there," Rosenblum said.
A February 2025 MSRB report found both yields and market volatility were positively correlated with trading volume, unsurprising given the rise in all three since early 2022 as inflation mounted.
Market volatility feeds into the high daily trade counts because of the "immense" retail nature of munis, said Dora Lee, director of research/partner at Belle Haven.
"As we've seen the volatility in the markets, especially in the Treasury market and global fixed-income markets, the SMA retail muni buyer has really been leaning toward a buy-and-hold approach. So they're less reactive to those wild swings," she said.
However, the volatility does trickle down and offer opportunities to reposition portfolios and tax-loss harvest, Lee said.
Attractive yields also play a role.
Currently, yields have risen more than 50 basis points since the end of June and returned to levels last seen in April 2025, a record month for trade count, the MSRB said in a LinkedIn post.
"We're starting to get back to 5s at a discount on certain items," said Doug Vissicchio, managing director and head of municipal trading and underwriting at UBS.
New issuers are coming at more of a concession to the secondary market, allowing institutional buyers to step in, he said.
There's good activity after the fact, "so there's always increased trading volume when you have higher new-issue weeks because of the retrading of deals," Vissicchio said.
Bid wanteds have also risen, topping $2 billion twice this week, with Wednesday hitting the highest level since late April 2025.
While not everything trades on a bid wanted, it shows customers are "making room" for new issues by selling, Vissicchio said.
Increased trading count will continue. Even after Friday's employment figure, it does not look like rates will be coming down.
"Whether looking at federal deficits, whether you're looking at the inflation numbers or Fed[eral Reserve] activity, you're [going to] wind up in this sort of higher-for-longer rates environment," Vissicchio said.
As long as rates stay elevated, people will want to buy fixed income, and trade counts will remain high, he said.
