Fewer letters of credit (L/Cs) are being used to back new US municipal bonds.

The fall mirrors spectacular declines in the issuance of new municipal bonds, which up until the global financial crisis, were seen as good vehicles for public authorities in the US to raise money.

Declining L/Cs

The value of new municipal bonds backed by L/Cs has fallen substantially during the first half of this year.

According to data released by Thomson Reuters, the value plummeted 65 per cent to US$10.5 billion in the first six months of 2009 from US$30.3 billion during the first half of last year.

Market free fall

The fall in L/Cs compares with the value of insured new municipal bonds.

It fell 61 per cent in the first half of 2009 compared to the same period in the previous year, from US$55 billion to US$21.4 billion.

Insured new municipal bonds now represent only about 11 per cent of total new issuance of US$195 billion, way below previous levels ofaround 50 per cent.

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