Muni ETFs: No Summer Vacation

ETFs are getting more attention, with high levels of trading activity.

Reviewed by: Patrick Luby
Edited by: Patrick Luby

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.


Muni ETFs

For a larger view, please click on the image above.




High Levels Of ETF Trading Activity
While they have continued to attract new assets (up $1.7 billion, year-to-date as of 6/2/17), most of the activity in muni ETFs has been in trading, with the ratio of dollar volume traded to net flows at more than 13:1 ($22.8 billion traded to $1.7 billion in new assets, as of 6/2/17 according to FactSet). The bulk of trading is concentrated in the largest ETFs, however, with the top 10 funds claiming 89% of the year-to-date trading volume.

Overall, the muni market has put up strong total returns so far this year. Perhaps most notable is the strong performance of the taxable municipal bond index, up 4.6% year-to-date after being up 5.7% last year.

On a related note, effective June 1, BAB changed its name and underlying index. Formerly the PowerShares Build America Bond Portfolio and tracking the BofA Merrill Lynch Build America Bond Index, the fund is now the PowerShares Taxable Municipal Bond Portfolio and tracks a broader index, the BofA Merrill Lynch US Taxable Municipal Securities Plus Index. The change allows the index (and the fund) to provide access to a larger number of securities. 


Muni ETFs

For a larger view, please click on the image above.


Muni ETFs can be used as the primary source of exposure to the muni market or can be added to an existing portfolio of individual bonds. For example, investors with matured or called bond proceeds may wish to use muni ETFs as “placeholders” to maintain an appropriate fixed-income allocation while waiting to reinvest in individual bonds. Or, they can be used to adjust the overall portfolio risk characteristics without having to sell bonds; for example, by adding short-duration ETFs to offset longer-duration bonds. 

Patrick Luby is the Municipal Strategist with CreditSights Wealth. For more information or feedback, please contact: [email protected] or call us at 212-340-3898 or 1-800-460-3320. This article is not intended as an offer or solicitation with respect to the purchase or sale of any security or as personalized investment advice. CreditSights Wealth publishes investment research but does not recommend the purchase or sale of financial products or securities, and does not give personalized financial or investment advice. Recommendations made in a report may not be suitable for all investors. See Important Disclosures at


Patrick Luby is the municipal strategist with CreditSights Wealth and has decades of experience in the municipal bond market.