Muni Yields Hit Lowest Since 1952 as Fiscal Crisis Tests a Haven

America’s municipal bondholders have never been paid so little for taking on so much risk.

The yields on state and local government bonds have steadily dwindled over the past month, even as the resurgent coronavirus pandemic is threatening to prolong the deep recession that’s dealing a financial setback to borrowers in virtually every corner of the $3.9 trillion market.

The oldest gauge of municipal yields, the Bond Buyer index of those on 20-year general-obligation bonds, now stands at 2.09%, the lowest since 1952. The Bloomberg 10-year benchmark slipped below 0.6% on Wednesday, the least since at least 2011. And MMD’s measure of 30-year yields has dropped to the lowest since it was started in 1982, according to Greg Saulnier, a managing analyst at Refinitiv.

The disappearing yields aren’t unique to the municipal market. With the Federal Reserve injecting cash into the financial markets to stoke the economy, those on corporate bonds, mortgages and U.S. Treasuries have tumbled, too.

But the drop in the municipal market is leaving investors receiving far less compensation than they did when the Fed cut rates near zero after the last recession, even though the current rout is projected to drive states and cities into what may be the biggest budget crisis in memory. Many bonds have been issued for ventures like hotels, stadiums, airports and public transit systems that are also highly sensitive to the downturn.