The U.S. municipal-bond market grew during the first quarter at the fastest pace in more than four years as states and local governments sold debt before borrowing costs rise from five-decade lows.
The amount of debt owed by states and localities increased by about $42 billion, or 1.1 percent, in the three months ended in March, according to data released by the Federal Reserve Thursday. It was the biggest increase since the last three months of 2010.
Governments are stepping up bond sales as the Fed prepares to raise interest rates. That marks a shift for the municipal market, which shrank during the past four years as public officials paid down debt while they struggled with the financial strains left by the recession.
Issuers from California to New York have sold $186 billion through June 5, the most for that period since at least 2005, data compiled by Bloomberg show.
Municipal issuance may exceed $400 billion this year, said Peter Hayes, head of munis at New York-based BlackRock Inc., which oversees $114 billion of the securities. Such a supply boost would increase the size of the municipal market in 2015, he said.
“We’re likely to see net-positive supply,” Hayes said.