Americans Are Smoking Again, a Boon for Municipal Tobacco Bonds

Americans are boosting spending on cigarettes for the first time in almost a decade. While that may raise health concerns in a nation that’s worked for decades to cut smoking, it’s fueling a rally in one of the riskiest corners of the municipal-bond market.

High-yield tobacco bonds, which are repaid from legal-settlement money that state and local governments receive from cigarette companies, returned 9.4 percent this year through Monday, almost five times the broader municipal market, Barclays Plc data show. That adds to a 19 percent gain last year, when investors plowed into the high-interest-rate securities that have been imperiled for years by the decline in smoking.