"They know what they're looking for, and waiting for certain yield levels" before buying, said Guarracino, who's based in Jersey City, N.J.
Advisers and brokers have been buying bonds less aggressively for their clients, BondDesk's Shayne said. The ratio of buy to sell orders for financial advisers and brokers purchasing bonds on behalf of individual investors has stayed at about 3 during the same period, the data show.
Individual investors purchasing bonds directly have been primarily buying short-term bonds, said W. David Hemingway, chairman of Zions Direct, an online brokerage that runs municipal-bond auctions open to individual investors.
Rising Rates
"It's hard to sell something longer than about three years," Hemingway said. Zions Direct is a unit of Salt Lake City-based Zions Bancorporation.
That's because individuals are concerned about rising interest rates, which typically cause longer maturity bonds to fall more in price than shorter dated debt, said Michael Zezas, municipal strategist for New York-based Morgan Stanley.
"Investors don't know what to make of the rate environment," Zezas said.
Interest payments on municipal bonds generally are exempt from federal taxes as well as state taxes for investors who reside in the issuing state.
In April, Senators Ron Wyden, a Democrat from Oregon, and Dan Coats, an Indiana Republican, introduced a bill that would eliminate the tax-exemption on municipal bond interest and replace it with a tax credit. The bill is awaiting further action with the Senate Finance Committee. In December, President Barack Obama's deficit-reduction commission also proposed to end the exemption.
Steady Income
Municipal bonds have returned 2.2% year to date according to the Bank of America Merrill Lynch Municipal Master Index, which yielded 3.9% on April 30, equivalent to a taxable yield of 5.9% for an investor in the top 35% federal tax bracket.