Municipal Bonds Increasingly Held by Funds Rather Than Retail Investors
From the Desk of Jim Eccleston:
The percentage of outstanding municipal bonds owned by U.S. retail investors dipped to 40% in the first three months of the year in comparison to 46% in 2020, according to a Municipal Securities Rulemaking Board report.
The board analyzed Federal Reserve data before determining that the market is shifting from direct ownership of bonds to investment via funds. The amount held outright by retail investors through individual brokerage accounts is likely closer to 20% since the Federal Reserve includes some Wall Street-managed accounts in its household category. According to Federal Reserve data, mutual funds and exchange-traded funds controlled 24% of municipal bonds in the first quarter of 2022, which is an increase from 20% in 2020. In particular, for example, only 3% of treasury bonds and 1% of corporate bonds are held by retail investors, according to the Municipal Securities Rulemaking Board.
The increasing control that asset managers have over the municipal bond market has contributed to the market’s volatility, according to analysts. Investors in exchange-traded funds and mutual funds are permitted to sell easily while buy-and-hold investors are more likely to hold the bonds until maturity.
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Tags: eccleston, eccleston law, bonds, municipal bonds
