The Secondary Market Process

After the initial sales of a new issue have been completed in the underwriting process, the bonds may continue to be bought and sold throughout the life of the security in what is generally called the secondary market. There is no central exchange for municipal securities. Instead, the secondary market for municipal securities historically has been an over-the-counter, dealer market.

Selling a Bond
Investors choosing to sell their securities rather than to hold them to maturity normally will sell through a municipal securities dealer that buys the securities and sells them either to another investor or back into the secondary market. Many factors can affect the market value of a municipal security and the price received in such a sale. These include changes in general interest rates that have occurred since initial issuance, changes in the credit quality of the security, current market conditions with respect to the specific type of municipal securities involved and other factors. Read more about pricing of municipal securities.

Buying a Bond
Purchasers of municipal securities tend to be "buy-and-hold" investors and the vast majority of fixed-rate municipal bonds and notes are not traded on a regular basis after the trading that occurs when they are new issues. Approximately one million different municipal securities are outstanding in the market at any given time, so a significant amount of secondary market trading does occur. However, the chances of a specific bond being available in the secondary market at any given time are relatively small. 

It is typical for investors seeking to purchase municipal securities in the secondary market to identify the basic characteristics of the security which is desired (e.g., state, credit worthiness, maturity range, interest rate or yield, market sector, etc.) and then to choose from among the municipal securities available for purchase at that time meeting those criteria.

Information about the prices at which municipal securities trade in the secondary market is available on a real-time basis, through the MSRB’s Electronic Municipal Market Access (EMMA®) website. EMMA also has historical trade price information dating back to January 1, 2005. 

Principal Trades
Historically, when a customer buys or sells a municipal bond, that trade occurs with a broker-dealer or bank acting as the other party, or "counter-party," in a "principal" trade. An investor may purchase a bond out of "inventory," meaning bonds that the broker-dealer or bank already owns with the expectation of later selling, or the broker-dealer or bank may acquire the bond from another broker-dealer, bank or investor for resale to its customer. Principal trades are usually done without a commission charge, with the broker-dealer or bank instead realizing profit or loss through the purchase by the broker-dealer or bank of the security and the re-sale of that security at a higher price to the customer.

Agency Trades
Agency trades, where the broker-dealer or bank is an intermediary between the buyer and seller and does not take ownership of the securities, are much less common in the municipal securities market. For one thing, it is often difficult to find someone interested in buying a specific municipal bond just when someone else is interested in selling that bond. A broker-dealer or bank typically charges a commission when serving as an agent between two counter-parties to a trade.