K-12 Tax & Spending Climate: US muni bonds see biggest drop since 2008

Nicole Bullock

Municipal bonds had their biggest one-day sell-off yesterday since the height of the financial crisis, prompting some borrowers to delay financing plans.

The yields on triple A 10-year bonds rose 18 bps to 2.93 per cent, the largest one-day rise since October of 2008, according the MMD index, which is owned by Thomson Reuters.

Absolute yields, however, remain well below crisis-era levels.

The $2,800bn "muni" bond market where states and municipalities raise money has been under pressure over the past week amid a rise in the yields of benchmark US Treasury bonds, heavy bond sales and uncertainty about federal support for the market.

The market declines have made investors, who are mostly wealthy individuals benefiting from tax breaks on muni debt, nervous about an uptick in defaults. Munis historically have been a relatively safe place to invest, but budget deficits and underfunded public pensions have created widespread concern that local entities could struggle to pay their debts.

Posted by Jim Zellmer at November 18, 2010 1:58 AM
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