Muni 10-Year AAA Yields Drop to Lowest Since at Least 2009

U.S. municipal-bond yields fell to the lowest since at least January 2009, when Bloomberg began compiling data on the benchmark, amid a four-month rally fueled by investors seeking a haven from Europe’s debt crisis.

The yield on top-rated, tax-exempt bonds due in 10 years dropped about 0.01 percentage point to 1.728 percent at 4 p.m. in New York, according to a Bloomberg Valuation Index. The interest rate reached a previous low of 1.737 percent on Feb. 2. Yields move inversely to bond prices.

With Treasuries leading the fixed-income rally, the 10-year benchmark muni yields are about 115 percent of those on federal debt with the same maturity, data compiled by Bloomberg show. The ratio, a gauge of relative value between the two asset classes, has been above 100 percent since mid-May, the longest streak since 2009, enhancing the appeal of munis.

“Muni yields still represent value as they’re above taxable yields across the curve,” said David Manges, municipal trading manager at BNY Mellon Capital Markets LLC in Pittsburgh. “We’re captive to where Treasury rates go, and we’re captive to our own supply and demand dynamic.”

Mutual funds that invest in municipal debt have added $16.3 billion this year, the biggest influx since 2009, according to Lipper US Fund Flows data. Demand has persisted even with three California localities opting to seek bankruptcy protection.

The benchmark 10-year yield has declined for nine straight days, the longest streak since April. The interest rate has fallen 0.19 percentage point since June 28, when Stockton, California, became the biggest U.S. city to file for Chapter 9 bankruptcy.

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