Fed report puts municipal market at $3.67 trillion at end of 2013

By Toni Weeks

San Luis Obispo, Calif., March 6 - The total amount of municipal securities and loans outstanding decreased to $3.67 trillion at the end of the fourth quarter from $3.69 trillion at the end of the third quarter, according to the Z.1 flow and outstandings report released by the Federal Reserve on Thursday.

In comparison, the amount outstanding was $3.71 trillion at the end of 2012, $3.72 trillion at the end of 2011, $3.77 trillion at the end of 2010, $3.67 trillion at the end of 2009 and $3.52 trillion at the end of 2008.

Of the $3.67 trillion outstanding at quarter's end, the majority - $2.92 trillion - was issued by state and local governments, followed by $518.5 billion issued by non-financial corporate businesses and $227.8 billion issued by non-profit organizations.

On the buyside, the household sector held $1.62 trillion of the securities outstanding at the end of the fourth quarter, followed by mutual funds with $610.9 billion, U.S.-chartered depository institutions with $416.4 billion, property-casualty insurance companies with $332.3 billion and money market mutual funds with $308.3 billion.

On a year-over-year basis, the amount of securities held increased for U.S.-chartered depository institutions (up 14.7%) and property-casualty insurance companies (up 1%). The amount fell for mutual funds (down 2.7%), the household sector (down 3.6%) and money market mutual funds (down 8.4%).

Flows fall by $164.4 billion

On a seasonally adjusted annualized and net basis, total liabilities in the municipals market declined by $164.4 billion during the fourth quarter of 2013, according to the report.

The large decline was partially offset by increases of $76.5 billion and $24.7 billion in the first and second quarters of 2013, respectively. But a decline of $109.7 billion in the third quarter brought the full-year decline to $43.2 billion.

This is the third year of declines. The amount of liabilities outstanding fell by $4.9 billion in 2012 and $52.8 billion in 2011. The declines follow three years of increases: a $99.7 billion increase in 2010, a $155.3 billion increase in 2009 and a $92.4 billion increase in 2008.

The fourth quarter's $164.4 billion decline was driven by a $145.4 billion decline for state and local governments and an $18.1 billion decline for non-profit organizations. Non-financial corporate businesses saw a relatively small $900 million decrease.

In comparison, liabilities increased by $1.4 trillion for Treasuries, $347.4 billion for agencies and $965 billion for corporate and foreign bonds in the fourth quarter on a seasonally adjusted annual basis.

On the buyside, municipals held by the household sector fell by $37.6 billion on a seasonally adjusted annual basis, money market mutual funds fell by $28.3 billion, mutual funds by $16.5 billion and non-financial corporate businesses by $7.8 billion. U.S.-chartered depository institutions marked an increase in their holdings of $53.4 billion, while property-casualty insurance companies increased theirs by $4.7 billion.

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