The municipal bond industry’s total assets fell by $7.5 billion in the second quarter of 2013 to $3.721 trillion, while households reduced their ownership of tax-exempt securities by $15.5 billion to $1.647 trillion, according to the flow of funds data as of June 30 released today by the Federal Reserve Board.
The declines, in line with recent quarterly trends, occurred in the midst of volatility regarding rising interest rates, a struggling economy, a weak Treasury market, and concernthe Fed would begin tapering its monthly bond buying program aimed at economic stimulus. The Fed last week maintained the program at $85 billion of purchases a month.
Assets grew to a 10-year record high of $3.772 trillion in 2010. They started to trend downward in the second quarter of 2012, fallingfrom $3.732 trillion to $3.719 trillion and $3.714 trillion, in the following two quarters of that year.
Before the latest decline, assets temporarily rose to $3.728 trillion in the first quarter of this year.
Households -- traditionally the largest holder of municipal debt ahead of mutual funds and insurance companies -- owned the least debt since the fourth quarter of 2012 when ownership totaled $1.657 trillion. That was $52 billion less than they held in the third quarter of 2012 and a 7.7% decline over 12 months compared to the $1.774 trillion they held in the second quarter of 2012.
Municipal ownership by households peaked in 2010, when they held $1.871 trillion -- its highest in 10 years. More recently, ownership has declined noticeably, falling to $1.806 trillion in 2011, followed by an even more significant drop to $1.657 trillion in the fourth quarter of 2012, according to the Fed data.
Similarly, assets among holders like mutual funds fell $5.4 billion for the three months ended June 30 to $641.2 billion, from $646.6 billion in the prior quarter. However, that was up 9.8% on a 12-month basis compared to the second quarter of 2012 when they held $583.7 billion.
Property and casualty companies ended the quarter with $330.4 billion of municipal debt, more than the $329.5 they owned in the first quarter of 2013, - and the most in four quarters. Ownership has been inching up since the third quarter of 2012 when they owned $327 billion.
Money market funds’ ownership of muni debt declined to the lowest in 10 years, as they ended the quarter with $309.6,down from $312.6 billion in the previous quarter. They have been steadily paring down their holdings of municipals since their ownership platteaued at $509.5 billion in 2008.
U.S.-chartered depository institutions held $390.3 billion, up 4.3% from the the first quarter, while broker-dealers showed a 38.7% decline in ownership to $19 billion, from $31 billion at the end of the first quarter of the year,which was a 10-year record low. Government-sponsored enterprises, meanwhile, increased holdings by 34.7% to $33.5 billion from the first quarter.
Overall, short-term municipal assets dropped 27.8% to $39.4 billion in April, May, and June, after totaling $54.5 billion in the three months ended March 31. Long-term muni debt rose by 0.2%, or $6.6 billion, to $2.931 trillion.
