Yields in the $3.7 trillion municipal market are close to the lowest since June as the biggest wave of local-government borrowing in a month failed to satisfy demand for tax-free debt.
Investors are buying after paying taxes on April 15. After federal increases that took effect last year, top earners faced a marginal rate of 39.6 percent, up from 35 percent, and a 20 percent tax on long-term capital gains and dividends, up from 15 percent.
“Normally demand picks up after people file their taxes,” said Gary Pollack, who oversees $6 billion of munis as managing director in Deutsche Bank AG’s private-wealth unit in New York. The higher taxes are “making munis an even more attractive investment.”
Illinois’s $750 million general-obligation sale led about $8.1 billion of fixed-rate, long-term borrowing, data compiled by Bloomberg show. It was the busiest week since March 14.
Benchmark 10-year munis have gained for three straight weeks, the longest rally since February, even with the boost in sales. Yields on the bonds fell to about 2.38 percent yesterday, the lowest since June 11, and rose to 2.39 percent today.
Municipal securities have earned about 5 percent this year, the best annual start since 2009, according to Bank of America Merrill Lynch data. The gains surpass the 2.1 percent advance for Treasuries.