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THE YEAR 1961 was unusual in being a record year in volume of new long-term capital borrowed by state and local governmental units, the high volume of bank purchases of tax-exempts, while, at the same time, yields changed only moderately. Gross new long-term capital borrowed by state and local governmental units during 1961 apparently amounted to $8.2 billion-a record level. Through November, it appeared that 1961 purchases of tax-exempts by commercial banks would be second to the record year of 1958. However, changes in Regulation Q apparently spurred very large December purchases of state and local securities, so that it is very likely that the 1958 record was equaled. While the high volume of new issues and the substantial purchases by commercial banks in the year as a whole probably canceled each other oult as factors affecting yields, perhaps most important in explaining yield stability in this market was the substantially unchanged monetary policy, unchanged trend in bank loans, and fairly constant quarter-to-quarter flow of new issues.

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