Auction rate securities (ARS) are long-term debt instruments typically sold by municipalities (municipal ARS) and by closed-end mutual funds as adjustable-rate preferred stock (ARPS) and are also sold by special purpose entities and others. The rates on ARS are set at periodical auctions based on the bids of potential buyers. This report concerns itself with only municipal ARS.

As of the end of July 2010, the auction rate market stood at an estimated $66.8 billion, with over 1,350 CUSIPs outstanding. Since the collapse of the municipal ARS market in February 2008 there have been no new municipal ARS issuances, according to Thomson Reuters data. With a rolling three-month average of $1.2 billion retired per month since January 2009, the market is currently shrinking by $15 billion annually; at the current rate and assuming no new issuance, the entire municipal ARS market would be retired in less than five years.

Texas, Pennsylvania, and New York had the most municipal ARS outstanding, with $7.0 billion, $6.7 billion, and $5.1 billion outstanding, respectively, end-July 2010. Of the $66.8 billion total of municipal ARS outstanding, 97.9 percent are revenue-based issuances, with relatively few general obligation issues remaining. By tax status, taxable bonds accounted for $27.0 billion, followed by alternative minimum tax (AMT) bonds ($23.4 billion), and finally tax-exempt bonds ($16.4 billion).

About the Report

A brief update to the municipal ARS market for the period 2009 to July 31, 2010.

Credits

SIFMA Research

• Managing Director, Director of Research: Kyle Brandon
• Research Analyst: Sharon Sung