While individual investors are snapping up municipal bonds like there’s no tomorrow, major institutional investors have been unloading them.
Sellers like Loews, Allstate and Guardian Life are concerned about big-time budget woes in many states and cities.
As for average investors, individuals have sent a record $55 billion into muni bond mutual funds this year, sparking the biggest market rally in 20 years, according to Bloomberg.
Insurance giant Allstate cut its muni holdings 8.3 percent in the third quarter.
“We’ve just begun to reduce our exposure to municipals because we are uncomfortable with some of the fiscal practices of some of the government entities,” Allstate’s CEO Thomas Wilson told Bloomberg.
The insurance firm Guardian Life sold munis in July and August, Tom Sorell, its chief investment officer, told Bloomberg.
That was after acquiring nearly $300 million of them at the end of 2008.
“It’s appropriate to reduce tactical allocations,” he said. “When the world blew up in 2008, tax-exempts got very cheap. That’s no longer the case.”
The holding company Loews sold $1.2 billion of munis this year, or 14 percent of its total, the firm told Bloomberg.
Many experts share investors’ worries about state and local finances.
"The problems are evident from coast to coast," Mark Zandi, chief economist of Moody's Economy.com, told The Wall Street Journal.
"Without more help to state and local governments, the resulting budget cuts will become a very significant drag on the economy."
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