As the average muni bond trade size continues to decline, it illustrates ongoing demand from separately managed accounts and reflects a market becoming more electronified.
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The average trade size fell below $204,000 in the first quarter, down 5% from 2025, according to Municipal Securities Rulemaking Board data.
The average trade size was $242,000 in 2024 and $291,000 in 2021, the data show.
This decrease in average trade size comes as SMAs continue to grow rapidly, to an estimated $1.3 trillion in AUM across around 180 managers in an early February report from J.P. Morgan.
Overall, SMA assets are large. Lord Abbett specifically, manages almost 26,000 individual accounts of varying sizes, said Dan Solender, partner/director of tax free fixed income at the firm.
“So there are constantly trades that need to be done, whether it’s getting a new account invested, raising money for someone to withdraw some money [or] selling bonds for investment reasons. They’re just constant reasons for doing small trades for all the firms like us that do separately managed accounts,” he said.
On a given day, Lord Abbett has certain trades it wants to make for investment reasons, but there are also trades the shop needs to do for client-requested activity, Solender said.
“So we have a huge volume of odd lot trades we’re doing, and with that volume, the dealers have set up ways to provide liquidity and find new ways to make markets profitable on automatic bidding,” he said.
It’s possible the average trade size may stabilize at some point, though SMAs continue to grow, Solender said.
“If anything, there’s a dramatic increase each day in how many accounts are created. So at least at a similar size to where we are today, there’s a lot of demand waiting in that part of the market [that] would probably keep growing,” he said.
Additionally, there is more overall participation from retail investors, said Cooper Howard, director of fixed income research and strategy at Charles Schwab.
Higher interest rates over the past few years generally mean larger income, which creates a more attractive environment for investing if a person is in retirement and needs to generate income from their portfolio, he said.
Secondly, household net worth has increased to record levels, which tends to push people into higher tax brackets and munis are one of the few investments that offer that tax advantage income, Cooper said.
Greater technology also allows for smaller trade sizes.
The dealer bid side of algos — which have existed for more than 10 years — has systematically changed the request for quotes side of the business as algorithms complement the human trader by being faster and more efficient, said Christopher Johnson, municipal product head at Tradeweb.
Solving the bid side was dealer algorithms, but to solve the offer side of the problem, “you needed distribution electronically,” he said.
“So then came all the infrastructure and pipes that the large dealers and [alternative trading systems] have built into the buy side. Without those, you can’t distribute odd lots because there’s no efficient way to trade 200 tickets at one time with a human booking that many tickets,” Johnson said.
Smaller average trade sizes have some benefits.
Compared to 10 to 20 years ago, the cost for liquidity is much lower now for smaller positions. There was a big price drop for the bid-ask spread for smaller trades, and that is shrinking, so it’s not as much of a problem to sell a small position now as it was a couple of decades ago,” Solender said.
Furthermore, smaller trade sizes are beneficial for issuers and investors because the smaller deals can be priced more efficiently, Johnson said.
And falling average trade size has little adverse effect on the muni market, aside from slightly more fragmented pricing and the appearance of liquidity rather than actual liquidity, Howard said.
“I don’t think that it’s a situation where it’s really moving the needle in the muni market. It’s just kind of happening and the markets continue to adjust to that. There’s no real sign of a breakdown,” he said.