Vanguard Group has closed a $3.2 billion fund that focuses on insured municipal bonds and will merge it into a second fund because fewer issuers are using the investment guarantees.

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Vanguard Group has closed a $3.2 billion fund that focuses on insured municipal bonds and will merge it into a second fund because fewer issuers are using the investment guarantees.

The Vanguard Insured Long-Term Tax Exempt Fund has been closed to new investors and will merge on Dec. 12 with the $2.8 billion Long-Term Tax Exempt Fund, Vanguard said in a statement. Vanguard, based in Valley Forge, Pa., is the largest U.S. manager of stock and bond funds.

Five of seven bond insurers, including MBIA and Ambac Financial Group, lost their top AAA ratings this year after losing money on securities linked to subprime mortgages. Most insured municipal bonds began trading at prices that reflected the credit quality of the issuer and ignored the value of the insurance, Vanguard said.

“The municipal bond market has changed to a point where insured bonds provide little, if any, additional benefit over high-quality uninsured credits,” Gus Sauter, Vanguard’s chief investment officer, said in the statement.

The use of bond insurance plummeted to 9 percent of new municipal issues last month from 46 percent in October 2007, according to data compiled by Thomson Reuters.

The Vanguard Long-Term Tax Exempt Fund is managed by Reid Smith. The fund, which had declined 5.4 percent this year, had beaten 74 percent of its peers, according to Morningstar.