Muni Yields at 14-Month Low to Treasuries as Puerto Rico Borrows

Municipal yields are close to a 14-month low relative to U.S. Treasuries as issuers led by Puerto Rico plan to sell $11.4 billion in bonds this week.

The ratio of 10-year state and local debt to federal securities, a gauge of relative value, was 90.5 percent yesterday, data compiled by Bloomberg show. The figure fell to 90.2 percent on March 7, the lowest since Jan. 29, 2013, and less than the one-year average of 104 percent. A smaller ratio means munis are relatively expensive.

The $3.7 trillion municipal market has outpaced a broad fixed-income rally this year, gaining more than Treasuries and corporate securities as issuance in February fell to the lowest since at least 2003. The supply drought is poised to reverse this week as Puerto Rico issues $3 billion in tax-exempt general obligations, its first such offering since 2012.

Puerto Rico bonds maturing in 2035 were offered yesterday at yields ranging from 8.625 percent to 8.875 percent, according to a person with knowledge of the sale. Investors said in February after the commonwealth’s rating was dropped to junk that the island may have to issue debt with double-digit yields to attract buyers.

Benchmark 10-year munis yield 2.51 percent, close to an eight-month low of 2.45 percent on March 4, Bloomberg data show. Treasuries with a similar maturity yield 2.78 percent.

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