Bloomberg News

U.S. Muni Debt Gains Fourth Straight Week as Issuance Declines

July 27, 2012

U.S. municipal bonds gained for the fourth straight week, the best streak since May, as a slowdown in issuance by states and cities helped push yields toward record lows.

The yield on top-rated, tax-exempt bonds due in 10 years dropped about 0.1 percentage point this week to 1.63 percent at 11 a.m. in New York, according to a Bloomberg Valuation index. That’s about the lowest since the index began in January 2009. Yields move inversely to bond prices.

Municipalities sold about $7 billion in debt this week, the least for a non-holiday-week since the period ending May 11, data compiled by Bloomberg show. Meanwhile, investors added about $1.65 billion to U.S. municipal mutual funds in the past two weeks, the most since May, Lipper US Fund Flows data show.

“Supply has been moderate, demand has been favorable, and munis -- with yields above Treasuries and in many cases above corporates -- have been seen as a store of value in a very low interest-rate environment,” said David Manges, municipal trading manager at BNY Mellon Capital Markets LLC in Pittsburgh.

Interest rates on 10-year tax-exempt municipal bonds have exceeded those on similar-maturity U.S. Treasuries since mid- May, the longest stretch since 2009. A ratio above 100 signals that local debt is cheaper than its federal counterpart.

The ratio fell to about 108 percent today, the lowest since May, as European leaders said they’ll do “everything” necessary to save the euro, reducing haven demand. Ten-year Treasuries are poised for their first weekly loss since June.

The yield on U.S. industrial corporate debt rated A, the sixth-highest grade by Standard & Poor’s, was 2.48 percent yesterday, according to a Bloomberg Fair Value index data. Similarly rated munis yielded 2.72 percent.

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

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


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