Aug 26, 2009

U.S. Municipal Bond Market Improving

Investors still cautious, but demand for the market is increasing

The municipal bond market was hit hard last year when markets froze up, but borrowing costs for states, cities and other public entities have dropped below historical norms, the Financial Times reported, indicating increasing demand for the market.

Issuers of Build America Bonds have raised $27 billion this year, according to Thomson Reuters. Through the federal stimulus package, municipal bond issuers receive a subsidy for 35% of the interest when they sell fully taxable bonds to fund infrastructure projects, the newpaper reported.

Investors are still cautious, and lower-rated municipal bonds have not recovered to the same extent as the debt of higher-rated issuers, Richard Ciccarone of McDonnell Investment Management said.

Those critical of more regulation see the improvement over recent months as evidence that the status quo is best, the newspaper reported. In early September, the Securities and Exchange Commission is expected to review public comments related to municipal bonds and decide whether or not changes should be recommended.

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