Municipal bonds rallied, pushing yields to the lowest in a month, as investors said rates on state and local debt were cheap relative to U.S. Treasuries.
The yield on benchmark 10-year tax-exempt bonds dropped to 2.37 percent at 1:14 p.m. in New York, down from 2.40 percent yesterday, according to a Bloomberg Valuation index. Yields touched their lowest in more than two years on Oct. 6. Ten-year Treasuries dropped to 1.98 percent today, from 2.40 percent on Oct. 27.
“We’ve had a 40-basis-point rally in the 10-year Treasury,” said Tom Boylen, a trader at Chicago-based Performance Trust Capital Partners. “Munis had some catching up to do.”
The ratio of interest rates on top-rated 10-year munis to those on Treasuries rose to 113 percent yesterday. The ratio, which is used by investors to determine relative value between the two classes of bonds, has stayed above 100 percent for all but one day since Aug. 29. The high ratio is attracting investors to munis who would ordinarily buy other types of debt, Boylen said in a telephone interview.
Demand for U.S. government debt, considered one of the safest assets, increased for a third day on concerns that European policy makers won’t be able to stop Greece from defaulting on its debt.