Bloomberg News

Muni Yields Plunge to 44-Year Low as 2012 Supply Trails Demand

January 24, 2012

Jan. 13 (Bloomberg) -- U.S. municipal-bond yields dropped to the lowest since 1967 this week as issuers were slow to sell enough debt in 2012 to meet demand after the asset class beat Treasuries and U.S. stocks last year.

The interest rate on 20-year general-obligation bonds with an average Moody’s Investors Service rating of Aa2, the third- highest, fell 0.21 percentage point to 3.62 percent in the week ended yesterday, according to a Bond Buyer index. That’s the lowest since April 1967, when Lyndon B. Johnson was president.

“We’re in the middle right now of just a powerful rally,” said Joe Deane, who manages $16 billion as head of municipal- bond investments at Pacific Investment Management Co. in New York. “You have to let the new-issue market begin to put supply back into the marketplace because, at the moment, the market is on the tight side.”

In the two weeks ended Jan. 6, states and municipalities issued $1.27 billion in bonds, according to data compiled by Bloomberg. That’s the lowest two-week total since January 2008.

The amount of local-government debt scheduled for sale in the next 30 days dropped to about $4.2 billion, down 37 percent from a one-month high on Jan. 10, Bloomberg data show.

The yield on top-rated 30-year municipal bonds fell for the fifth straight day, to 3.39 percent at 4 p.m. New York time, according to Bloomberg Valuation Index data.

The $3.7 trillion municipal-bond market returned 11.2 percent in 2011, compared with 9.8 percent for Treasuries, according to Bank of America Merrill Lynch index data. The Standard & Poor’s 500 index was little changed for the year.

--Editors: Mark Tannenbaum, Mark Schoifet

To contact the reporter on this story: Brian Chappatta in New York at bchappatta1@bloomberg.net

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


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