Municipal bonds are offering better yields than Treasuries and have become the darling of investors looking for higher yields balanced with good quality. Recent new issues were lapped up, also due to the short supply that has followed the July 4 holiday.
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Even though yields on munis were lower, they still outperformed their Treasury counterparts. Muni 10-year yields were 1.78% compared to 10-year Treasury yields of 1.51%. Supply of bonds is expected to pick back up to June levels after falling off from the mid-week holiday.
Meanwhile, so-called cleanup legislation proposed in California is attempting to distribute tax revenues that have been collected but were formerly awarded to redevelopment agencies no longer in existence. Proposed reductions in tax revenues to successor entities could threaten agencies’ ability to fulfill their debt service on existing bonds.
Standard & Poors has placed all California investment-grade tax increment bonds on negative CreditWatch
, noting that the clean-up legislation is designed to be more in favor of the state’s Department of Finance rather than successor entities and bond investors.