March 7, 2013 / 5:03 PM / 5 years ago

Municipal bond market contracts slightly in Q4 -Fed

WASHINGTON, March 7 (Reuters) - The amount of outstanding U.S. municipal bonds dropped slightly in the fourth quarter of 2012, to $3.714 trillion from $3.719 trillion in the third quarter, according to Federal Reserve data released on Thursday.

States, local governments and agencies raced to refinance their bonds throughout 2012, taking advantage of record low interest rates, while new issuance fell off over the course of the year.

The household sector dropped $238.1 billion municipal bonds in the fourth quarter, after shedding $221.9 billion in the third quarter. It was the largest decline in individual investors’ holdings in at least two years, according to the central bank’s quarterly Flow of Funds Accounts.

Mutual funds continued to sweep up the bonds in the quarter, although at a slower rate. They acquired $69.9 billion, after buying $107.2 billion bonds in the third quarter. Exchange-traded funds added $4.0 billion in the fourth quarter.

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