(Adds details on households, insurance companies, funds)
By Lisa Lambert
WASHINGTON, Sept 16 The size of the U.S.
municipal bond market shrank to $2.89 trillion in the second
quarter of 2011 from $2.91 trillion in the first quarter,
Federal Reserve data showed on Friday.
It was the second quarterly contraction in a row, although
the level of outstanding debt remains above $2.84 trillion in
the second quarter of 2010.
The central bank's estimate of state and local governments
and authorities' outstanding bonds has come under fire lately,
with the market's main information gatherer, the Municipal
Securities Rulemaking Board, saying the real market size is
closer to $3.7 trillion.
In July, the Federal Reserve said it was evaluating the
discrepancy between its reports and private-sector estimates.
The bank did not appear to have changed its methodology in the
the data released on Friday.
Individual investors, worried by the fiscal crises in states
and cities, have been nervous about holding the debt. The Fed's
data showed that in the second quarter they shed $91.8 billion
of municipal bonds.
The central bank also said households dropped $28.2 billion
of municipal bonds in the first quarter, a major revision from
its prior estimate of $3.6 billion in that quarter.
Individuals are still the largest holders of municipal
bonds, accounting for $1.07 trillion of the market in the second
Property-casualty companies, traditionally large
institutional holders, shed $5.8 billion of bonds in the second
quarter after buying $5.2 billion in the first period.
Mutual funds, though, acquired $19.5 billion of municipals
in the second quarter, showing appetite for the debt after they
got rid of $45.9 billion in the first quarter. They now hold
$520 billion municipal bonds.
Foreign investors bought $8 billion in the second quarter
and $8.8 billion in the first, the Fed said.
(Editing by Andrea Ricci and Jeffrey Benkoe)