Munis Cheapest in 7 Months Versus Treasuries on European Crisis

U.S. tax-exempt debt gained in most maturities today while failing to keep pace with rallying Treasuries amid concern that Europe’s debt crisis is deepening.

Ten-year Treasury yields fell to a record low, leaving interest rates on similar-maturity municipals about 119 percent of their federal counterparts. It’s the highest ratio since October, data compiled by Bloomberg show.

Top-rated 10-year munis yielded 1.88 percent at noon in New York, according to data compiled by Bloomberg. Benchmark 10-year Treasury yields fell five basis points, or 0.05 percentage point, to 1.58 percent at 12:30 p.m. New York time. The yield reached as low as a record 1.5309 percent.

“This is the global flight to quality continuing,” said Hardy Manges, head of municipal trading at Mitsubishi UFJ Securities in New York.

Interest rates on AAA tax-exempt debt due in 30 years are also about 119 percent of comparable-maturity federal bonds, the highest since January.

Munis’ relative cheapness to Treasuries may increase demand for tax-exempt debt from buyers of taxable securities, Manges said.

“The cross over trade looks pretty attractive here,” Manges said.

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