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Rally in Longest Muni Bonds Drives Yield Gap to Eight-Year Low

  • Investors and analysts still recommend buying long-dated bonds
  • Individuals have a `greater comfort' that rates won't jump
Updated on

The longest-dated municipal bonds haven’t looked this expensive since before the 2008 financial crisis. Yet investors aren’t showing any signs of slowing their purchases.

Following a rally that began in the second half of 2015, the extra yield buyers pick up for holding 30-year debt instead of two-year securities fell last week to as little as 1.96 percentage points, the lowest since February 2008, according to data compiled by Bloomberg. The difference shows investors are anticipating that bonds maturing in decades will fare best at a time when inflation is subdued and the Federal Reserve is planning to raise short-term rates.