Tax-Exempt Bonds Suffer Worst Month of 2010 as Yields Climb
Tax-exempt bonds had their worst monthly returns of 2010 as rising U.S. Treasury yields and record state and local debt sales sparked withdrawals from mutual funds investing in municipal securities.
- (1888PressRelease) December 02, 2010 - Tax-free securities lost 2.29 percent in November, the third consecutive monthly drop and the longest slide since 2004, according to the Bank of America Merrill Lynch Municipal Master Index, which accounts for price changes and interest income
States and municipalities borrowed about $55.6 billion last month, the most since at least 2003, according to data compiled by Bloomberg. About $53.7 billion was sold in October, the second-most on record. "The volume jump fed into price declines as mutual funds had to sell holdings to cover investor redemptions", said Michael Richardson, CEO at Reed Mcpherson Associates in Seattle.
"First it's a little bit of supply shock," the Reed Mcpherson CEO said. "Then that coincides with withdrawals from funds, which triggers forced selling, which triggers another round of declines."
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