Bid wanteds elevated due to tax-loss selling, outflows
CreditSights
Ongoing tax-loss harvesting and outflows from open-end mutual funds have led to elevated bid wanteds, which could continue through year-end, analysts said.
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Most investors will probably start by picking the “low-hanging fruit” — the larger positions, the deeper losses, said Pat Luby, head of municipal strategy at CreditSights.
But the technical headwind the market currently faces will not persist until the end of the year, and the extreme volatility in the U.S. Treasury market should subside as Election Day approaches, he said.
So if some stability emerges in USTs, that could lead to stability in the muni market, Luby said.
If that happens, yield demand could snap yields lower pretty quickly, probably slowing selling demand, Luby said.
The heavy amount of bid wanted and customer selling activity in September likely contributed to the tax-exempt market dramatically underperforming the UST market, according to the Municipal Securities Rulemaking Board.
Before September, April 2025 was the last time more than $2 billion was out for the bid on Bloomberg, the MSRB report said.
While there were eight of those days in April 2025, there were 16 in September, three of which topped $3 billion, according to the report.
Sept. 29 saw a near-record of $3.776 billion in bid-wanteds, second only to March 19, 2020, when, at the start of the pandemic, over $4 billion was out for the bid, the report said.
Bid wanteds have remained elevated so far in October, with every day seeing over $2.5 billion out for bid, two of which were more than $3 billion, according to Bloomberg data.
“A very large portion of it is folks taking advantage of the current environment, not changing their position, buying something that’s similar but not the same, and then harvesting the loss for future benefit,” said Andrew Clinton, CEO and founder of Clinton Investment Management, of tax-loss harvesting.
The muni market, at least from a rate perspective, is seeing a “huge correction,” with the asset class following what’s happening in the UST market, said Jeff Timlin, managing partner and head of municipal bond investing at Sage Advisory
“We haven’t really seen any repricing along credits or sectors on the whole. So I think it’s broad-based selling, and then you’re seeing where the flows are going,” he said.
There has been a divergence between flows for open-end and exchange-traded funds.
Open-end funds saw massive outflows of $2.681 billion for the week ending Sept. 30, while ETFs saw sizable inflows of $2.073 billion, according to LSEG.
The large outflows stem from the “traditional retail mindset” of seeing a lower-than-comfortable level net asset value, of a mutual fund or tax-loss selling, Luby said.
“Selling out of one muni mutual fund, and if you want to avoid a wash sale, one potential strategy is probably to sell your mutual fund over here, but buy a muni ETF over there,” he said.
A significant amount of money came out of active managers last week and went into the two largest exchange-traded funds: BlackRock and Vanguard, according to Timlin.
Market participants are utilizing tax-loss selling, and “instead of going and buying back individual pieces, [they’re] going and buying back ETFs just to get the money to work quickly,” he said.
The elevated bid wanteds also indicate the dealer community is quicker to pull back from the market, said Lyle Fitterer, co-lead of the municipal sector and senior portfolio manager at Baird Funds.
“They have a limited amount of capital. They’ve got good risk procedures in place, and going back several years, a lot of the dealers would buffer some of that. Today, they pull away from the market,” he said, noting this creates volatility.
But despite elevated bid wanteds, this is not a uniform vote that investors are getting out of the market, Luby said.
“Some are probably uncomfortable, but I think [it’s] more of a result of resetting positions in the market,” he said.
