Municipal securities trading fell in third quarter

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Third quarter municipal securities trading fell 10.5% to $723 billion from $808 billion in the second quarter, despite an increasingly vibrant secondary market in taxable munis.

The volume also fell by 2.7% compared to the same quarter a year earlier, with trading dropping by $20.4 billion from the $743.3 billion traded in the July through September period of 2018.

The number of trades decreased about 16% to 2.01 million from the same quarter in 2018.

Michael Decker, public policy consultant to the Bond Dealers of America, described the flatness of trading volume as “a little perplexing.”

"Trading activity is closely correlated with issuance activity, and issuance was up 22% in the third quarter relative to last year," Decker said. "At least part of the answer is associated with a reduction in trading volume among the most active CUSIPs, most of which are Puerto Rico deals. Trading in distressed bonds tends to be driven by issues specific to the issuer and often doesn't reflect market-wide trends."

Marcelo Vieira, the MRSB’s director of research, noted that quarter to quarter trading is subject to volatility.

“Certainly it’s a decrease from the last quarter, but when I look at the first quarter to the second quarter, there was an increase,” Vieira said.

There could be “a host of reasons” for the recent decline, Vieira said.

One area that showed an increase was trading in taxable securities, which Vieira said was reflective of the recent news surrounding an increase in taxable bond issuance.

There were 144,684 trades in the third quarter involving $73.68 billion of taxable bonds.

“When you see an uptick in primary market issuance volumes, that would ordinarily translate most of the time into an increase in secondary market trading,” Vieira said. “And that is certainly something that we saw in these numbers.”

Meanwhile, the overall top two securities traded in the third quarter by par value were Texas State Tax Revenue Anticipation Notes 2019 and Texas State Tax Revenue Anticipation Notes 2018.

The par amount of the 2019 notes, which mature Aug. 27, 2020, was $9.59 billion for 1,067 trades.

The par amount of the 2018 notes, with a maturity of Aug. 29, 2019, was $3.15 billion for 684 trades.

The other top five traded securities by volume were Puerto Rico restructured bonds CONFINA A-1 ($2.64 billion),

IDA of East Baton Rouge, La. revenue bond (Exxon Mobil) series 2010A ($2.28 billion) and Gulf Coast IDA (Texas) revenue bonds (Exxon Mobil) series 201 ($2.17 billion).

Securities from Puerto Rico continued to dominate trading activity accounting for 19 of the top 50 most traded securities with nearly 25,000 trades in the quarter.

Customer buying activity accounted for 37.1% of the 2.01 million trades during the period and customer sales accounted for 23.6% of trades.

The number of variable rate demand obligations rate resets continued to decline, falling to 88,935 from 92,707 in the same quarter of 2018.

The number of auction rate securities rate resets also declined from the same period of 2018, dropping to 835 from 1,270 a year earlier.

The number of continuing disclosure documents received by the MSRB totaled 29,589 in the latest quarter, with bond calls accounting for 29.1%. Audited and annual financial filings accounting for 16.8% and 13.5%, respectively.

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Secondary bond market Tax-exempt bonds Taxable bonds MSRB Washington DC
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