Muni bond yields rise again
Municipal bond yields keep going higher -- but nervous investors still aren’t biting.
A lack of buyers for long-term tax-free bonds on Monday drove prices down and yields up for a ninth session.
The yield on a Bloomberg index of 20-year California general obligation issues rose to 5.11%, up from 5.05% on Friday and the highest since mid-2004.
The market is suffering from a cascade of problems that began in December with fears about the financial health of big insurance firms that guarantee many muni issues.
Since then, investors -- and Wall Street investment banks -- have pulled back from some of the complex muni securities those banks designed in recent years.
The new securities often involved turning long-term debt into short-term, floating-rate debt.
Now, as skittish investors and banks retreat, bonds are going begging. The result has been a jump in yields as sellers try to entice buyers.
The supply and demand picture in the muni market is becoming “deeply out of balance,” according to a weekend report from Municipal Market Advisors in Concord, Mass.
News on Monday that credit rating firm Standard & Poor’s said it maintained its AAA rating of MBIA Inc., the biggest bond insurer, failed to give the muni market much comfort.
Many muni experts say tax-free yields are compelling for investors who can buy and hold high-quality bonds. Yet many buyers remain sidelined.
Munis “are cheap, but they’re getting cheaper,” said Bob Gore, a trader at Crowell Weedon & Co. in Los Angeles.
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