Muni Yields Set for Biggest Weekly Jump Since February on Supply

Yields in the $3.7 trillion municipal market headed for the biggest weekly increase in four months as investors prepared for rising bond issuance while demand for state and city securities ebbed.

Interest rates for benchmark 10-year munis have risen about 0.07 percentage point this week to 2.32 percent, data compiled by Bloomberg show. It would be the steepest weekly jump since February. States and cities are set to sell almost $9 billion of bonds next week, the most since March. The wave is a departure from a trend of declining sales, as borrowing is down about 25 percent from last year’s pace.

Yields touched a one-year low of 2.24 percent on June 2, after falling the past two months. The drop may have slowed inflows to mutual funds, said Roberto Roffo, who helps oversee $1.8 billion of munis at Monument, Colorado-based Advisors Asset Management Inc. Investors added about $192 million to the funds this past week, down from $634 million the prior week and the least since April, Lipper US Fund Flows data show.

“The supply in the market has given investors a freedom of choice that they haven’t had,” said Ken Friedrich, head of muni sales, trading and syndication at RBC Capital Markets in New York. “That’s put a little upward slant to yields.”

Tax-exempt bonds have gained each month this year, the first time that’s occurred since 1991, according to Bank of America Merrill Lynch indexes.

Among issuers next week, Los Angeles Unified School District, the state’s largest, plans to sell $1.7 billion of general-obligation bonds to refinance debt.

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