Biggest quarterly sell-off of munis since 1995

U.S. mutual funds, money-market accounts and individuals cut their holdings of municipal bonds as borrowing by state and local governments dropped during the first three months of the year, the Federal Reserve said.

The number of municipal bonds outstanding slid by $20.5 billion to $2.9 trillion during the first quarter, the Fed said in a release today. That marked the steepest drop since 1995, according to data compiled by Bloomberg. Holdings by households, the biggest owners of the debt, slipped by $5.6 billion to $1.08 trillion, while those owned by money- market and mutual funds dropped by $23.8 billion.

Municipal-bond sales have slowed this year since the end of the Build America Bond program, which provided federal subsidies to borrowers.

That helped hold returns steady during the first quarter even as investors pulled money from the market amid speculation that the fiscal struggles of local governments could lead more borrowers to default.
–Bloomberg News–