Bloomberg News

U.S. Muni Debt Rallies Most in Four Months as Economy Cools

April 27, 2012

U.S. 10-year municipal yields are set to drop for the third-straight week, the longest rally since December, as signs of slowing U.S. economic growth bolster demand for fixed-income assets.

Yields on benchmark 10-year tax-exempt debt are down 0.07 percentage point this week to 1.895 percent at 11:15 a.m. today in New York. That’s the lowest since February, according to Bloomberg BVAL data. It’s the bonds’ longest streak of gains since December. The index, which began in January 2009, set a record low of 1.74 percent on Feb. 2.

Tax-free debt is following U.S. Treasuries on reports showing a more moderate U.S. economic rebound and amid concern about Europe’s debt crisis, said Hardy Manges, head of municipal trading at Mitsubishi UFJ Securities in New York.

“All those issues affect Treasury rates, and munis follow from there,” Manges said in an interview.

Federal debt due in 10 years yielded 1.95 percent at 11:08 a.m. in New York after reaching 1.88 percent, the lowest since Feb. 3, according to Bloomberg Bond Trader prices.

States and cities have borrowed $7.1 billion of bonds this week, the least since March, Bloomberg data show. That drop also helped depress local-government interest rates, Manges said.

U.S. jobless claims fell to 388,000 in the past week from 389,000 the prior period, the highest since January, Labor Department figures showed.

Gross domestic product, the value of all goods and services produced in the U.S., rose at a 2.2 percent annual rate in the first quarter, after a 3 percent increase the prior period and below the median forecast in a survey by Bloomberg News.

To contact the reporter on this story: Michelle Kaske in New York at mkaske@bloomberg.net

To contact the editor responsible for this story: Stephen Merelman at smerelman@bloomberg.net


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