Flip-Flop in Municipals

U.S. investors have replaced the giant life insurance companies as the principal buyers of municipal bonds. This news was double-checked last week when the third largest U.S. life insurer, New York Life, announced that it had sold $106,000,000 in municipal bonds last year, thus cut its municipal holdings almost in half. Other big--but not officially reported--sellers were Metropolitan and Prudential (which unloaded big blocks of Toledo Water Revenues and Nashville Electric Revenues on the market).

The insurance companies sold partly by choice, partly because they had to. They wanted to unload because municipal bonds are quoted near the highest prices ever, many an insurance outfit had profits of five to 25 points. They had to sell because they needed cash to buy an ever-rising flood of Government bonds. Whatever the reason, this is a good break for private investors: 1) it makes up for the wartime slack in new municipal financing (towns & cities cannot get materials for new construction); 2) it gives them a crack at topflight bonds which have a good yield and are tax-exempt to boot. Result: private investors have already bought enough municipal bonds to knock the floating supply down to about $50,000,000--a mere drop in the market compared with the potential demand.

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