Bloomberg the Company & Products

Bloomberg Anywhere Login

Bloomberg

Connecting decision makers to a dynamic network of information, people and ideas, Bloomberg quickly and accurately delivers business and financial information, news and insight around the world.

Company

Financial Products

Enterprise Products

Media

Customer Support

  • Americas

    +1 212 318 2000

  • Europe, Middle East, & Africa

    +44 20 7330 7500

  • Asia Pacific

    +65 6212 1000

Communications

Industry Products

Media Services

Follow Us

Muni Returns to Fade as Interest Rates Rise, Morgan Stanley Says

Don't Miss Out —
Follow us on:

March 26 (Bloomberg) -- Returns in the $3.7 trillion municipal bond market are set to “cool off” amid rising interest rates, according to Morgan Stanley analysts led by Michael Zezas.

State and local bonds have earned about 3.4 percent this year through March 24, after a 2.9 percent decline in 2013, according to Bank of America Merrill Lynch data. The 2013 loss was the first for the $3.7 trillion market since 2008. Benchmark 10-year muni yields set a one-month high of 2.59 percent yesterday, data compiled by Bloomberg show.

Ten-year Treasury yields, at about 2.74 percent, should reach 3.3 percent in the fourth quarter as the economy strengthens, according to the report released yesterday by the New York-based bank. Zezas’s most-likely scenario is that munis post an annualized loss of 1 percent over the next three quarters.

“As the economy transitions to a higher growth channel, we expect some more pain from rising rates before valuations become attractive,” Zezas wrote.

If state and local bonds decline this year, it would be the first back-to-back annual losses in more than three decades.

To contact the reporter on this story: Romy Varghese in Philadelphia at rvarghese8@bloomberg.net

To contact the editors responsible for this story: Stephen Merelman at smerelman@bloomberg.net Mark Tannenbaum

Please upgrade your Browser

Your browser is out-of-date. Please download one of these excellent browsers:

Chrome, Firefox, Safari, Opera or Internet Explorer.