By Elizabeth Rembert, Shruti Date Singh, Martin Z. Braun and Erin Hudson April 10, 2025, 2025-04-10 12:40:11 GMT
(Bloomberg) — Municipal bonds have become an attractive target for bargain-hunting investors after a historic rout pushed up yields.
The sharp selloff in recent days drove muni benchmark yields up more than other areas of fixed income, making the tax-exempt bonds look like a particularly good deal. The yield on top-rated, 30-year benchmark bonds was 4.8% on Wednesday, the highest since 2011. For a wealthy investor in California to get the same value, a similar Treasury bond would have to offer a yield of 8.11%, after the tax exemption on the muni bonds is factored in ” and the rates on US government debt are nowhere near that.
“We’re definitely getting to that point where people who don’t even care about the tax exemption may start to sniff”, Andrew Clinton, chief executive officer of Clinton Investment Management, said earlier this week. The 30-year muni-Treasury ratio, a key measure of relative value, topped 100% on Wednesday, meaning the tax-exempt bonds were yielding more than taxable debt. That’s the cheapest since 2022, according to data compiled by Bloomberg. After the muni rout accelerated on Monday, banks that had not been active in the market began scooping up the cheap debt, according to multiple people familiar with the matter who declined to be named discussing private deals. Insurance companies have also been big buyers over the past few days, said other people with knowledge of the purchases.
The gap remained wide even after the broader markets bounced back on Wednesday afternoon in response to the Trump administration’s 90-day tariff pause. That’s because muni investors tend to move more slowly than other asset classes. While equities come roaring back instantly, there are still some wounds in the municipal trading market that might take a couple of trading days or more to heal,
said John Miller, who oversees the municipal high yield investments at First Eagle Investment Management. Muni ETFs, a leading indicator of demand, saw $630 million of inflows according to data as of Wednesday.
High-Tax States
The trade was even more valuable for investors in high-tax states like New York and California. On Tuesday, New York City priced 10-year debt with a 3.81% yield. A 10-year Treasury bond would have to offer 6.44% to give investors the same tax-equivalent gains. In another example of juiced-up yields, one investor bought more than $5 million of tax-exempt California general obligation bonds with a 4% coupon at a yield of 4.28% on Wednesday. Last week, the state sold similarly-dated debt with a 3.67% yield.
“This is the time when you want to be buying. When everyone is running away from the market, you want to be running toward the market,” said Terry Goode, a senior portfolio manager at Allspring Global Investments. “You’re able to pick up good credits at adjusted yields that are higher and are attractive.” When muni bonds were suffering their worst day in decades earlier this week, it wasn’t due to concerns about credit quality, according to investors and analysts. The primarily-retail investor base may have sold their holdings to buy stocks or raise cash as they ride out the wild volatility caused by President Donald Trump’s tariff plans.
That uncertainty was compounded by seasonal factors, with the market pressured by high supply and less demand as investors tend to sell holdings to pay taxes. Michael Pietronico
Been managing munis a long time today may be the worst single day I have ever seen – yields up 35 to 40 bps in spots. When it turns it will be a vicious rally don’t try and time get cash invested NOW. Sent via Twitter for iPhone. View original tweet.
The rout brought on comparisons to the early days of the Covid-19 pandemic, when the market experienced violent swings, said Miller. “The two-day declines feel a lot like the worst two days at the start of the pandemic driven lockdowns, but potentially setting the stage for a major snap-back recovery,”he said. Municipal bonds are still a safe haven asset, according to Patrick Haskell, head of municipal bonds at BlackRock Inc. But, he said in an interview, “that doesn’t mean the price doesn’t move.”
–With assistance from Michelle Kaske and Amanda Albright.
To contact the reporters on this story:
Elizabeth Rembert in New York
Shruti Date Singh in Chicago
Martin Z. Braun in New York
Erin Hudson in New York
To contact the editors responsible for this story: Danielle Moran at Nathaniel Popper
To view this story in Bloomberg click here: Bloomberg