MSRB Chief Economist Simon Wu analyzed the decline in transaction costs for customer trades in the municipal bond market.
In his report, Mr. Wu found that "dealer-to-customer spreads" (costs paid by investors to execute a trade) declined by 51 percent between 2005 and early 2018. He concluded that the contributing factors to the decline in spreads were: (i) MSRB regulatory initiatives aimed at promoting transparency and (ii) technological advancements, such as the widespread use of electronic trading systems. He also pointed to bond characteristics, such as the "percentage of insured bonds, average yield and average trade size," as a less significant contributing factor.
Mr. Wu found that dealers earn lower dealer-to-customer spreads on trades that exceed $1 million. He stated that these "high par trade spreads have remained relatively consistent since 2005."
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