First Republic -$186 million -$1.5 billion
US Bank -$171 million +$250 million
Citigroup also reduced its exposure during the year by about $2 billion, with $34 million of that during the third quarter. While Wells Fargo & Co. added $69 million of municipal bonds during the quarter, its holdings are still down by about $3.8 billion this year.
Spokespeople for all the banks declined to comment about their holdings.
The pullback was spurred by President Donald Trump’s corporate tax cut, which reduced the advantage of holding municipal bonds instead of higher-yielding securities like corporate debt. As a result, banks cut their holdings of state and local debt by $26.7 billion during the first half of the year, according to the Fed, which is expected to release its third-quarter data in the second week of December.
The diminished demand from the banks likely weighed on the performance of the longest-dated bonds, which the institutions tend to buy. While the overall municipal market has lost 0.23 percent this year, debt maturing in at least 22 years has lost 1.37 percent and is the worst performer among all maturities, according to Bloomberg Barclays indexes.
But the $3 billion drop in the third quarter by the biggest banks signals that the pace of the pullback may be slowing. Those same lenders reduced their municipal holdings by $5.6 billion in the second quarter and by $11.3 billion in the first three months of the year, according to the banks’ quarterly filings.
This article was provided by Bloomberg News.