Thought Leadership

New State of the Municipal Bond Market

August 19, 2009

Outstanding debt in all sectors of the US fixed income market has gone from $4.6 trillion in 1985 to $33
trillion in 2008. In 2008, NYSE total domestic (US) market capitalization was $10.1 trillion. Over the past two decades the more traditional securities declined as a percentage of the market, while newer securities such as mortgage related and asset-backed debt increased rapidly. Lower interest rates led to searching for more yield in riskier sectors. Holders of Municipal Bonds 1980-2008 The mix of municipal bond investors changed dramatically from 1980 to 1995, and has remained relatively constant to the present time. The biggest changes were the increase in mutual funds, and the decrease in commercial bank and property and casualty insurance holdings. Direct holdings by households declined from 1990, and were picked up by mutual funds. Decline in 2008 of municipal hedge funds and other purchasers. Includes mutual funds, money market funds and close-end funds. Includes property-casualty and life insurance companies. Includes commercial banks, savings institutions and brokers and dealers. Includes nonfinancial corporate business, nonfarm noncorporate business, state and local governments and retirement funds and government-sponsored enterprises. Source: Federal Reserve