ETFs

Muni ETFs have grown in popularity ever since the first launch in 2007, gaining a foothold due to their cost-effective nature and ability to help investors acquire a significant amount of diversification.

Household ownership of munis — which includes direct ownership of individual bonds in brokerage accounts, fee-based advisory accounts and SMAs — rose to $1.779 trillion, up 0.3% from Q4 2023 and from 5.6% in Q1 2023.

Despite losses, munis are "being set up nicely" as the summer season approaches, said Jeff Lipton, a research analyst and market strategist.

"In terms of credit quality, high-yield funds proved resilient" while investment-grade funds saw outflows of $673 million, noted J.P. Morgan's Peter DeGroot in a market note.

Muni exchange-traded funds are "dominated" by retail and are "momentum driven," said David Litvack, a tax-exempt strategist and chief investment officer at BofA.

Barclays' Mikhail Foux talks shifting demand, BABs refundings, election effects and what it means for the asset class in a volatile market.

Some participants on the Street estimate that SMAs hold as much as $1.5 trillion of munis while others peg it closer to $1 trillion to $1.3 trillion.

The inflows into muni mutual funds mark a reversal from 2022 and 2023.

Late-month volumes are "waning as it appears the year's tax-loss harvesting was accomplished leading up to the holiday period," said Kim Olsan, senior vice president of municipal bond trading at FHN Financial.

Data for the second quarter show the face amount of munis outstanding rose 0.4% quarter-over-quarter, or $15.5 billion, to $4.043 trillion.