Individual investors bolted from the U.S. municipal bond market in the third quarter, with data released on Tuesday showing the number of small trades spiked at the same time bond funds registered record outflows.

The number of trades in the third quarter rose 23 percent from the same period in 2012 to 2.93 million, according to the Municipal Securities Rulemaking Board, which acts as a central clearinghouse for trades in the $3.7 trillion market. The surge followed an 8 percent increase in trades in the second quarter, to 2.72 million, from the year before.

The increase came from a blizzard of small trades — the average trade size was $281,833 in the third quarter, compared to $334,372 in the third quarter of 2012. When measured by par amount, trading rose only about 4 percent to $825 billion in the third quarter.

Meanwhile, bond funds, which are favored by individual investors, registered the largest quarterly net outflow of $32.01 billion on records going back to 1992, according to Lipper, a unit of Thomson Reuters.

Fears of U.S. interest rate hikes began rocking the market at the end of April, and rising yields have spurred small and individual investors to sell debt and flee municipal bond funds. On Municipal Market Data's benchmark scale of highly rated debt, 30-year bonds started the year yielding 2.86 percent. At the end of the third quarter they yielded 4.12 percent, according to MMD, a Thomson Reuters company.

Trading may be slowing, however. A BondDesk Group report released last week found daily trade volume declined in October, and was 13 percent lower than the 12-month high level set in August.