Don’t Blame ETFs for Muni Liquidity

by PL

Most municipal market investors and their advisors would agree that liquidity in the municipal bond market has declined in the last several years.

Some participants in the traditional over-the-counter municipal bond market have been wondering if the growing popularity of municipal bond ETFs has been draining liquidity from the market for individual bonds.

An analysis of municipal bond ETF flows suggests that rather than draining liquidity from the municipal bond market, muni ETFs (the first of which came to market in 2007), have in fact attracted new liquidity to the marketplace.

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