Contact: Leah Szarek, Chief External Relations Officer
NEW MSRB RESEARCH PAPER STUDIES EVOLUTION OF TAXABLE MUNICIPAL BOND MARKET
Washington, DC – The Municipal Securities Rulemaking Board (MSRB) today published a research paper that studies the evolution of the taxable municipal bond market over the last decade. The paper compares a typical year to two years when taxable municipal bond issuance was particularly high—2010, when the Build America Bonds (BABs) program was available, and 2020, following the elimination of the ability for issuers to use tax-exempt bonds to advance refund outstanding debt, an outcome of the Tax Code and Jobs Act of 2017.
“While still a fraction of the tax-exempt municipal market, the taxable municipal bond market has become increasingly important to issuers and investors alike, although the type of investors driving this market is changing,” said John Bagley, MSRB Chief Market Structure Officer, who co-authored the paper with Marcelo Vieira and Emma Tilley. “Institutional investors are increasingly driving the municipal market overall, with this trend being most pronounced in the taxable market.”
Taxable new issuance reached exceptional highs in the years 2020 and 2010, with much lower and consistent volume in the intervening years. In 2010, taxable new issuance reached over $151 billion, or about 36% of overall new issuance, driven by the attractive subsidy (35%) offered for the issuance of BABs, a program the federal government created as part of the American Recovery and Reinvestment Act following the 2008-2009 financial crisis to encourage investment in local areas. In 2020, taxable new issuance more than doubled from 2019 levels, reaching $138 billion in 2020, or roughly 31% of new issuance, as issuers took advantage of historically low rates to advance refund existing tax-exempt debt with taxable debt. In contrast, there was on average less than $30 billion in taxable new issuance each year from 2011 to 2018.
While the volume of primary issuance of taxable municipal securities was similar in 2010 and 2020, the main drivers of the large volumes of taxable new issuance in 2010 and 2020 were different, as were market dynamics. Among taxable trades of $1 million or more, often used as a proxy for institutional investors, there were 41% more trades in 2020 than in 2010. On the other hand, among trades of $100,000 or less, a proxy for trades by individual investors, there were 50% fewer taxable trades in 2020 than 2010. In fact, the 2020 taxable market was skewed more toward institutional-sized trades than in any previous year, which is consistent with the overarching trends in the municipal market overall.
The MSRB collects real-time municipal securities trade data, as well as primary market and secondary market disclosures. In addition to making the data and disclosures available for free on its Electronic Municipal Market Access (EMMA®) website and compiling quarterly and annual statistics, the MSRB conducts independent research and analysis to support understanding of market trends. Recent MSRB market research analyzes the evolution of transaction costs in the municipal and corporate bond markets during and after the COVID-19-induced liquidity crisis, teases out noticeable trends in municipal securities buying patterns over the past decade and documents the historic volatility and recovery of the municipal market in 2020.
The Municipal Securities Rulemaking Board (MSRB) protects and strengthens the municipal bond market, enabling access to capital, economic growth, and societal progress in tens of thousands of communities across the country. The MSRB fulfills this mission by creating trust in our market through informed regulation of dealers and municipal advisors that protects investors, issuers and the public interest; building technology systems that power our market and provide transparency for issuers, institutions, and the investing public; and serving as the steward of market data that empowers better decisions and fuels innovation for the future. The MSRB is a self-regulatory organization governed by a board of directors that has a majority of public members, in addition to representatives of regulated entities. The MSRB is overseen by the Securities and Exchange Commission and Congress.