Fidelity Investments plans to increase its presence in the municipal-bond market, firm executives said in an interview.
“We want to increase the number of negotiated deals, either as underwriters and managers or co-managers of municipal bonds, and we intend to grow that this year,” said Cheryl Dubin Tutun, senior vice president of relationship management and marketing at Fidelity Capital Markets.
Boston-based Fidelity participated in 420 deals last year, a 25% increase from the 330 deals in 2007, the firm said.
With many municipalities starved for funding, the market is a major growth area, Ms. Tutun said.
In addition, tax-exempt investments become more appealing in an environment where higher taxes are expected. And fixed-income trades have been on the rise since the market meltdown.
Fidelity saw an 18% increase in average daily fixed-income trade volume last year, over 2007. In the fourth quarter alone, the average daily fixed-income trade volume was up 75% from the fourth quarter of 2007, the firm said.
The values of the trades also increased. Fidelity reported a 20% increase in the par value of all fixed-income trades last year and a 122% increase in par value for corporate bonds alone, compared with 2007.
“Advisers react to the markets and are making changes in asset allocation,” said Ron Fiske, executive vice president of product development and management at Fidelity Institutional Wealth Services.
“The market had people focused on the preservation of capital, which is one of the attributes of fixed income,” he said. “This accelerated a trend that we were seeing in the marketplace.”
While muni bonds have rallied in recent months, there could still be volatility ahead, said Miriam Sjoblom, mutual fund analyst at Morningstar Inc. in Chicago.
“The biggest risk in the market is more liquidity risk,” she said. “I would expect to see more volatility in the year ahead.”
But at least there isn’t much risk of default with munis, Ms. Sjoblom said.
“For the run-of-the-mill, general-obligation bond, the instances of default have been very rare,” she said. “For the long-term investor, I think there is value there.”
Meanwhile, Fidelity Capital Markets announced plans this week to expand its capital markets division by 20% this year, to a total of 480 people, in order to build its capabilities for equity, fixed-income and prime-brokerage trading.
In addition, the company plans to open a trading floor in New York by mid-year, a Fidelity spokesman said. The trading floor in midtown Manhattan will eventually be staffed by 100 traders.
The division had an average daily trading volume of 347 million shares of securities as of Dec. 31, the firm reported.
