The stream of people investing in the municipal bond market through individual bonds continues to rise.

Family ownership of municipal bonds, including those who own issues directly, grew to $1.779 trillion in the first quarter of 2024. That’s up .3% from the fourth quarter of last year and an increase of 5.6% from the first quarter of 2023, according to The Bond Buyer.

Driving household demand, analysts say, is the desire of investors to construct their own portfolios with the assistance of specialists.

Retail investors continued to dominate the municipal bond market in the quarter, accounting for 44.5% of ownership. Other owners include mutual funds (19.1%), U.S. banks (12.9%), casualty insurers (5.3%) life insurance companies (4.7%) and exchange-traded funds (3.1%).

“The value of municipal bonds owned by households increased by .3% quarter-over-quarter, better than the .3% decline for the market, suggesting the likelihood that individual investors were net buyers in the quarter,” the chief strategist from CreditSights told The Bond Buyer.

At the end of the first quarter of this year, the face amount of municipal bonds outstanding was $4.081 trillion, an increase of 1% from the same quarter last year.

The market value of municipals was $4.001 trillion, a bump of 1% from the first quarter of 2023.

Why individual muni bonds?

We’re not surprised investors are leaning toward owning tax-free bonds directly, as the advantages are hard to miss. Chief among them: Peace of mind.

Coupons are fixed and maturity dates are stated; guesswork is unnecessary. If the bonds are called or reach maturity, investors receive the par value of the bonds.

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While investors own their bonds, market values will invariably fluctuate. However, for those who buy-and-hold – the approach for most successful bond investors – swings are irrelevant. With bonds funds, there is no definite maturity date, so investors are uncertain what the future might bring.

Importantly, investors can tailor the munis they buy, hold or sell to their particular investment objectives. And, unlike bond funds, investors don’t pay management fees when they own individual issues.

Long-term trend

The number of individual investors assembling their own portfolio of municipal bonds, with the assistance of professionals, has been rising for years (“More Muni Investors Selecting Their Own Bonds”).

Investors are drawn by the ability to capitalize on unique opportunities that arise – especially with the elevated yields we’re seeing now – and to understand what’s in their portfolios.

Which makes sense.

After all, the point of municipal bonds is to generate a predictable stream of tax-free income simply and without breaking a sweat.