New letters of credit (L/Cs) guaranteeing US bonds fell sharply in 2013, largely as a consequence of stagnation in the variable-rate market for municipal debt.

Data released by Thomson Reuters also shows that the amount of insured bonds of the same type fell last year too.

Diminishing role

In 2013, just US$4.29 billion of bonds were back by L/Cs, which the market turned to in droves when insurance became hard to come by during the financial crisis.

According to Thomson Reuters, J P Morgan Chase was 2013's largest L/C provider, backing US$2.11 billion bonds in eight deals, while Wells Fargo backed ten deals valued at US$618 million.

Declining market

The decline in L/C-backed issues in 2013 appears in part due to a 15.1 per cent fall of municipal debt sales in the year.

Insured bonds increasing their share of the market from 3.6 per cent in 2012 to 3.9 per cent last year may also have dented the L/C backed market share.

Insured bonds

Before the 2008 financial crisis, insured bonds had a market share of around 50 per cent, but it appears that their decline may be slowing as their 2013 fall of 9 per cent was the smallest in a decade.

Nevertheless, insured bonds fell a substantial 29 per cent to reach their lowest level in real terms since the financial crisis.

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