Muni Yields at September High Before Surge in Supply

U.S. municipal-bond yields climbed to the highest since September as investors in the $3.7 trillion market prepared for the biggest wave of state and local debt issuance in 18 months.

The interest rate on benchmark munis maturing in 10 years has increased this week about 0.06 percentage point to 2.94 percent, data compiled by Bloomberg show. That’s the highest since mid-September. The rate has risen five consecutive weeks, the longest stretch since June, the data show.

States and cities are set to sell about $11.9 billion of long-term debt this week, the most since June 2012, Bloomberg data show. That includes deals of more than $1 billion from New York’s Thruway Authority and Utility Debt Securitization Authority as well as California’s Foothill/Eastern Transportation Corridor Agency, the data show.

A Labor Department report today showed payrolls grew by 203,000 positions and the jobless rate reached a five-year low. Policymakers at the Federal Reserve, which buys $85 billion a month to suppress interest rates across fixed-income assets, meet starting Dec. 17.

Munis “have backed up this whole week with Treasuries on the economic news, and they will still be on the weaker or softer side going into next week,” said Ken Kollar, a trader with Arbor Research & Trading Inc. in New York. “People are defensive going into that heavy calendar.”

The supply wave will test a market that has faced a record exodus of cash in 2013. Individuals pulled $875 million from muni mutual funds in the week through Dec. 4, Lipper US Fund Flows data show. It was the 28th-straight week of withdrawals. The longest stretch of weekly outflows is 30, set in 2000. Individuals have yanked money on concern that a growing economy will lead to higher interest rates.

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

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.