Individual investors increased their municipal bond holdings by more than $21.2 billion in the first quarter of 2003, according to the Federal Reserve Board’s flow of funds data. As of March 31, household holdings totaled $640.744 billion – a record amount – and an increase of more than 3% over 2002.
In today’s lower interest rate environment, a greater number of investors opted to buy individual bonds to avoid the management fees attendant to municipal bond funds. With rates declining, these fees take a greater percentage of the funds’ return.
However, muni funds’ holdings increased by $4.566 billion, bringing their total holdings to $281.989 billion.
Overall, total municipal debt outstanding rose $45.265 billion to $1.816 trillion.
The remainder of new issuance was absorbed by property and casualty insurance companies.