The value of new letters of credit (L/Cs) used in the US municipal bond market more than tripled in the second quarter of this year over the value recorded in the first quarter of 2011, according to data from Thomson Reuters.

Demand for L/Cs in this market has ebbed and flowed substantially in the wake of the credit crunch, since when municipal issuers have found it hard to find to sufficiently highly rated insurers to cover the bonds that finance public works in the US.

Variable values

The value of L/Cs used to back US municipal debt issues surged by 319 per cent in the second quarter of 2011 over the first quarter, according to the Thomson Reuters data.

But the US$2.65 billion of new L/Cs covering municipal debt in the first half of 2011 is 32.4 per cent lower than in the same period in 2010, according to the data.

This roller coaster of L/C issuance has been notable since 2008 when the value of credits used by US municipal bond for that year tripled over the value issued during 2008 (DC World News, 22 January 2009).

Leading issuers

So far this year, J P Morgan Chase has been the leading issuer of L/Cs for the municipal bond market and has written US$708 million of business.

Wells Fargo Bank and Bank of America are the next most prominent players in the market.

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