The summer months have historically been among the most actively traded months of the year in the municipal bond market.
In each of the last six years, the daily average trading volume in the summer months was higher than the average for the full year. Given the annual peak in called and matured bonds in the summer months, the pickup in trading activity is understandable; it’s driven by reinvestment needs.
With this year’s reinvestment flows expected to be heavier than last year’s, it is likely that the above-average trading volume will persist. We now estimate that June redemptions will total $52.9 billion. with total redemptions for the summer (June, July and August combined) of $138 billion.
Forecast redemptions include maturing bonds as well as bonds that have been advanced or refunded and are expected to be called away. While more than half of the June redemptions occurred on June 1, there is still $25.5 billion to be redeemed between now and the end of the month, according to Bloomberg data.
With the possibility of a significant gap between potential reinvestment demand and new supply, market dynamics will likely reflect the resulting reinvestment strategies, with some participants in the traditional municipal market considering municipal bond ETFs as an option.
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