The $3.7 trillion municipal-debt market is poised to rally for a third straight week as yields on benchmark 30-year tax-exempts fell to their lowest level since Bloomberg began compiling the data in 1991.
Tax-free debt gained with Treasuries as investors sought a haven amid Europe’s financial crisis. Concern that a $122 billion rescue plan for Spain may not be enough pushed yields on U.S. federal notes maturing in five years to record lows.
Ten-year munis rated AAA yielded 1.72 percent at 1 p.m. in New York, down from 1.77 percent at the end of last week, Bloomberg Valuation data show. The yield has declined three straight weeks for the first time since May. A benchmark of 30- year tax-exempts fell to 3.35 percent this week, the lowest since the index began in 1991.
“People are looking for a little extra yield in what is still considered by the market as a safe asset class,” said Ken Kollar, a trader with Arbor Research & Trading Inc. in New York.
Yields on AAA tax-exempt debt due in 30 years are about 117 percent of those on comparable-maturity federal bonds, data compiled by Bloomberg show. The ratio, a measure of relative value between the two asset classes, has averaged 103 percent since 2001.
Declining yields are leading investors to buy longer-term maturities for the higher interest rates, said Hardy Manges, head of muni trading at Mitsubishi UFJ Securities New York.
Municipal bond funds added about $837 million in the week through July 18, the most since May, according to Lipper US Fund Flows data.
Prices on the largest exchange-traded fund tracking municipal bonds rose to a five-month high (MUB:US). The iShares S&P National AMT-Free Bond Fund ended at $111.57 yesterday, the highest closing level since Feb. 22.
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