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Muni-Bond Liquidity Crisis Hits Governments With Rates Up to 11%

  • Sell-off in variable-rate bonds as managers meet redemptions
  • Shades of 2008 crisis, with billions of bonds resetting higher
Congress Votes to Extend Federal Funds For Highways Through July

Photographer: Daniel Acker/Bloomberg

The sell-off sweeping through the municipal-bond market is hitting cities, public-transit systems, hospitals and local governments with spiraling interest bills on floating-rate debt, dealing a new financial hit just as they contend with the economic toll of the coronavirus pandemic.

The jump is a result of the rapid pullback from the market over the last two weeks, which has left mutual-fund managers dumping the most liquid securities to raise cash to cover investors’ withdrawals. The variable-rate bonds are among the easiest to offload because they can always be sold at full face value to Wall Street banks, which have been forced to reset the interest rates sharply higher to avoid being stuck with unwanted inventories.