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Muni Yields Reach Three-Month High as Fed Cites Job Gains

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March 14 (Bloomberg) -- Tax-exempt 10-year bond yields rose to a three-month high as U.S. Treasury interest rates jumped after the Federal Reserve said the labor market is gaining strength.

The yield on top-rated U.S. municipals due in 10 years rose seven basis points to 2.12 percent at 4:02 p.m. in New York, the highest since Dec. 5, according to data compiled by Bloomberg. A basis point is 0.01 percentage point. The 30-year muni yield climbed to 3.38 percent, the highest since mid-February. Yields move in the opposite direction of prices.

“This is a reaction from the Treasury sell-off,” Jason Hannon, a trader at New York-based Arbor Research & Trading Inc., said in a telephone interview. “People are willing to concede on levels in order to get bonds traded.”

Fed policy makers raised their assessment of the economy yesterday, saying “the unemployment rate has declined notably in recent months but remains elevated.” The U.S. jobless rate fell to 8.3 percent in February from 9 percent a year earlier.

Treasuries due in 10 years yielded 2.27 percent at 4:36 p.m. in New York, the highest level since October, according to Bloomberg Bond Traders prices.

Municipal rates aren’t rising as quickly as yields on federal bonds, making tax-exempt debt more expensive compared with Treasuries.

The 30-year benchmark tax-exempt yield was 99.2 percent of the interest rate on similar-maturity Treasuries, the lowest since July and down from 137.7 percent in November, according to data compiled by Bloomberg.

The iShares S&P National AMT-Free Bond Fund, the biggest exchange-traded fund tracking the muni market, fell 0.93 percent today to $108.35, the lowest since Dec. 30, according to data compiled by Bloomberg. The premium on the fund, the amount by which its share price exceeds the value of its holdings, was 0.35 percent yesterday, the lowest since Dec. 5.

To contact the reporter on this story: Michelle Kaske in New York at mkaske@bloomberg.net

To contact the editor responsible for this story: Mark Tannenbaum at mtannen@bloomberg.net

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