Bloomberg News

Municipal Yields Set to Top Treasuries for Eighth Straight Week

October 28, 2011

Oct. 28 (Bloomberg) -- Municipal-bond yields are poised to remain above those of U.S. Treasuries for the eighth straight week, the longest stretch since 2009.

The ratio of interest rates on 10-year municipal bonds to those on Treasuries fell to 100.5 percent yesterday, from 123 percent on Oct. 6, its highest since 2009. The ratio, which investors use to assess relative value between the two fixed- income classes, hasn’t been below 100 percent since Aug. 29. It has averaged 91 percent since the start of 2001.

“This ratio is toward the low end of where it’s been,” Hardy Manges, head of municipal trading at Mitsubishi UFJ Securities in New York, said in a telephone interview. “I don’t see it getting much lower.”

The yield on benchmark 10-year tax-exempt bonds rose to 2.40 percent at 12 p.m., from 2.39 percent yesterday, according to a BVAL index. It touched 2 percent last month, the lowest since the index began in January 2009.

Yields on 10-year munis, which move inversely to prices, are down 2 basis points this week, and are poised for the first back-to-back weeks of declines since August. A basis point is 0.01 percentage point. Treasuries with similar maturities yield about 2.3 percent, according to Bloomberg Bond Trader prices.

State and local governments are taking advantage of municipal rates close to the lowest since the 1960s to issue debt, elevating yields this month. Municipalities borrowed about $7.8 billion this week, pushing October sales to about $32 billion, the most this year.

U.S. 30-year bonds were poised for their fifth weekly decline, in what would be their longest losing streak in more than two years. Demand for the safe haven of federal securities weakened in the past month on speculation European policy makers will contain their debt crisis.

--Editors: Stephen Merelman, Mark Tannenbaum

To contact the reporter on this story: Andrea Riquier in New York at ariquier@bloomberg.net

To contact the editor responsible for this story: Mark Tannenbaum at mtannen@bloomberg.net.


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