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Strong rally in municipal bond market

Trader at the New York Stock Exchange

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Scott Jagow: States are cities are selling off about $6 billion worth of debt this week -- $423 million worth in Houston, $400 million in New York. A long list. What's surprising is it appears there will actually be buyers. Lots of them. Here's Jeremy Hobson.


Jeremy Hobson: A month ago, no one wanted to lend money, least of all to cities and states. Hedge funds and money market funds fled the municipal bond market. That sent yields up and prices down.

Bad news for those who were already holding bonds. But, says Tom Doe, CEO of Municipal Market Advisors, good news for those trying to get into the market. From October 15 until the end of last week:

Tom Doe: We saw the strongest rally in the municipal bond market, I believe, in history.

This week, the rally continues. Doe says the buyers appear to be individual investors. Drawn to the high-yield, and mostly tax-free bonds.

Doe: Once they understood that the falling price was a liquidity issue, not a credit issue, they felt very comfortable owning the bonds.

The return of investors to the bond market is particularly good news for municipalities, which rely on selling their debt to finance things as basic as roads and schools.

In New York, I'm Jeremy Hobson for Marketplace.

About the author

Jeremy Hobson is host of Marketplace Morning Report, where he looks at business news from a global perspective to prepare listeners for the day ahead.

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