(Bloomberg) -- Investors are rushing into the $4 trillion municipal bond market to take advantage of bargain prices.

“Trade volumes are up so much because munis is the cheapest it’s been in about a decade,” Simone Santiago, a managing director at Morgan Stanley Investment Management, said. “There is this fear that if I don’t get involved at this moment, I will miss my opportunity to buy munis at such attractive levels.”

On Nov. 1, trading volume was about 87,400, surpassing the high of approximately 84,000 reached a year ago, according to Municipal Securities Rulemaking Board data. Since the top of the month, volumes have been hovering between 70,000 to 80,000.

Year-to-date average daily municipal-bond trading volume is roughly 51,000, close to surpassing 2022 full-year average volume, data from MSRB show.

High-volume trading is associated with rising yields, according to MSRB research. And this year, muni yields saw some of their highest levels in more than a decade giving investors incentive to buy even as state and local government mutual funds saw persistent fund outflows as the market struggled along with the rest of fixed income.

Ten-year benchmark, top-rated municipal bond yields hit more than 3.6% at the end of October, spurring the flurry of trading in early November. Those absolute levels enticing investors and softer economic data caused the bonds to rally, with that 10-year yield falling more than 50 basis points to 3.1% as of Thursday. 

At the same time, the lack of supply this year further fueled by an end-of-year seasonal slowdown in issuance has spurred demand. Investors also typically have more cash on hand from coupon payments than available debt to purchase this time of year.

Read more: Muni Market’s Five-Year Streak of November Gains Is on the Line

The higher trading volumes since October can also be attributed to tax-loss harvesting — where investors sell securities that have dropped in value and reinvest in similar, higher-yielding bonds — Western Asset Management Company said in a report published Tuesday. 

‘Huge Swings’

But don’t let the increased trading fool you, said JJ Warren, a municipal-bond trader at Stifel Nicolaus & Co Inc. Up until last week the market was on track for its second consecutive year of declines.

“When Covid hit for example, there was so much selling because of the uncertainty and we had these huge swings in the market,” he said, adding that there is “just a lot of activity right now.”

Slowing inflation in the US last month could indicate that the Federal Reserve may be nearing the end of its interest-rate hiking campaign. That would lower borrowing costs for muni bond issuers, which could boost bond sales.

“If the Fed starts to cut rates, then you will see more active buyers in our space because people will be leaving money markets to buy traditional munis and I can see our trade volume increasing overtime,” Santiago said.

--With assistance from Martin Z. Braun.

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