For municipal-bond fund managers flush with cash, it’s not easy finding something to buy.

The amount of debt changing hands in the secondary market has become unusually thin, with investors holding on to their bonds after a rally that drove a key measure of valuations to a record high.

There were an average of about 32,500 municipal-bond trades every day since the start of the year, the smallest average over the same time period since 2005, according to Municipal Security Rulemaking Board transaction data. That added up to about $9.3 billion worth changing hands each day, the lowest over that same time period in two decades.

“There are not a lot of options for the ability to buy bonds,” said Simone Santiago, senior municipal trader at Eaton Vance.

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Tax-exempt bonds have been heavily in demand this year, in part because of President Joe Biden’s push to raise income taxes on the wealthiest Americans. Investors have added an average of about $1.9 billion to municipal-bond funds each week in 2021, more than quadruple the average since 2010, according to Investment Company Institute figures.

Christopher Brigati, managing director of municipal investments at Valley Bank, said the market’s gains have given investors less incentive to sell since they would have to pay capital gains taxes and reinvest the money just as valuations are at lofty levels. Yields on 10 year benchmark state and local government bond yields are hovering around 60% of U.S. Treasury bonds, near the lowest since at least the start of 2001, according to data compiled by Bloomberg.

“It’s expensive for managers to reinvest in the market because rates are so low and ratios are so low,” he said. “That dries up the natural flow of trading.”

The pace of debt sales is picking up in the primary market, where state and local governments have sold about $190 billion of long-term debt so far this year, about 18% more than the same period a year ago, according to data compiled by Bloomberg.

But that hasn’t been enough to satisfy demand, particularly since many bonds are being paid off early as governments refinance. Citigroup Inc. analysts estimate that from June through August, the amount of money that investors will receive from principal and interest payments on tax-exempt bonds will outstrip the volume of new sales by about $62 billion.

Eaton Vance’s Santiago said that the dearth of trading is unlikely to reverse anytime soon.

“Until we see enough supply in the market to meet the demand, or if we see a backup in rates which tends to loosen up the trading, I think we will remain in this range for a while,” she said.

— With assistance by Natalia Lenkiewicz