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Tax Exempt Securities

Who are the principal owners of tax-exempt securities? How has this changed over time? What are the main factors in the decisions of the different types of owners about increasing or reducing their holdings of tax-exempt securities?

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Who are the principal owners of tax-exempt securities?

The largest owners of tax-exempt securities are individuals, mutual and money market funds, property and casualty insurance companies, and commercial banks.

How has this changed over time?
(source:http://www.morganstanleyindividual.com/markets/bondcenter/school /prudentpath.pdf).
Individual investor ownership in municipal bonds- either directly or through investments in bond funds-has increased dramatically since 1986. (The year of the Tax Reform Act of 1986)
Today, over 75% of the outstanding supply of municipal bonds and notes, which are tax free securities, is owned by the individual investors, as opposed to institutional and corporate investors. This percentage was less than 50% in 1986.

The Tax Reform Act of 1986 imposed alternative minimum tax to generate federal tax revenue. It imposed this ...

Solution Summary

The solution discusses the ownership of tax exempt securities, how it has changed over time and the the main factors in the decisions of the different types of owners about increasing or reducing their holdings of tax-exempt securities.

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