This month, municipal bond spreads continued to recover. The December 2010 yield on AAA-rated municipal bonds increased from 4.55% to 4.89% for 30-year bonds and from 3.14% to 3.38% for 10-year bonds. Yields on treasuries also increased from 4.20% to 4.44% for 30-year bonds and from 2.80% to 3.34% for 10-year notes, staying slightly below the yield on 10-year municipal bonds. Despite the increases in yields, municipal bond mutual funds are still losing investors at historical rates (e.g., $548.1 million sell-off during the week of December 8, 2010), due in part to the impending expiration on December 31, 2010, of the Build America Bonds and other federal subsidy programs.
Source: Bloomberg (www.bloomberg.com)