Retail Investors Tiptoe Back Into Muni Bonds as Yields Beckon

Retail investors are showing signs of tiptoeing back into the $4 trillion tax-free bond market by one measure, signaling that key holders of the debt may be looking for bargains.

The number of daily trades surpassed 60,000 on a few days in late April, levels last seen during the 2020 pandemic-induced selloff. In March, that figure averaged around 42,600, according to trade data from the Municipal Securities Rulemaking Board.

The increase in the number of daily trades exceeds the growth in the total dollar value of trades. That suggests that more trades are of smaller size, typically a sign of retail investors getting more active.

To the extent individual investors are buying, they’re doing so after muni bonds have been getting weaker all year. Average yields are about 3.2%, compared with 1.1% at the end of last year, according to Bloomberg index data. Excluding a brief time in the early part of the pandemic, current levels are the highest in years. And for some securities, yields can be even higher, which is attracting investor interest.