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Munis Retreat From LBJ-Era Low as Treasuries Jump on Jobs Report

Yields on municipal debtmaturing in a decade or more rose from the lowest in 45 years, as better-than-expected job gains sent Treasury yields higher.

The muni rates jumped as much as 9 basis points, according to Hardy Manges, head of municipal trading at Mitsubishi UFJ Securities in New York. The yield on top-rated tax-exempt bonds maturing in 12 years increased 6.4 basis points to 1.98 percent at 2 p.m. in New York, according to a Bloomberg Valuation Index.

Yields on 10-year Treasuries -- which move inversely to prices -- rose as much as 13 basis points, the most since Nov. 10, according to data compiled by Bloomberg. The U.S. jobless rate fell in January to 8.3 percent, the lowest in three years, according to the Labor Department. That bolstered economic optimism and reduced demand for Treasuries, seen as a haven.

“It’s just Treasuries,” Manges said. “The Treasury weakness is driving the muni weakness right now.”

In the week ended Feb. 1, the interest rate on 20-year general-obligation bonds with an average Moody’s Investors Service rating of Aa2, the third-highest, fell 8 basis points, or 0.08 percentage point, to 3.6 percent, according to a Bond Buyer index.

That’s the lowest since April 1967, when Lyndon B. Johnson was president.

“That’s all due to lack of supply,” Chip Peebles, senior vice president of municipal trading at Morgan Keegan Inc. in Memphis, Tennessee, said in a telephone interview.

Gentle Pressure

The amount of local-government debt scheduled for sale in the next 30 days fell to $4.8 billion today, the smallest in three weeks, Bloomberg data show.

Mutual funds that focus on U.S. municipal bonds received about $502 million in net additions in the week ended Feb. 1, according to Lipper US Fund Flows data. It was the ninth-straight week of gains. Inflows signal greater demand.

Municipal investors are also poised to collect $31.6 billion this month from coupon and principal payments, up from about $30 billion in January, according to Chris Mauro, head of U.S. municipal strategy at RBC Capital Markets in New York.

“The pressure on our market shouldn’t be too strong,” Peebles said. “A little adjustment today actually may prove itself to be an opportunity to buy.”

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