Municipal-bond prices have fallen further than other debt amid rising U.S. interest rates this summer, exacerbating investor jitters spurred by Detroit's record-setting bankruptcy filing, the Wall Street Journal reported today. Bonds from some financially troubled issuers, like Puerto Rico and Chicago, have been particularly hard hit. Debt from the Windy City, which was downgraded by Moody's Investors Service last month amid questions about its pension liabilities, now yield about 1.50 percentage points more than a municipal market benchmark, up from about one percentage point in early July, according to Dan Toboja, senior vice president in fixed-income trading at investment bank and broker-dealer B.C. Ziegler & Co. in Chicago. Higher yields indicate lower prices. Yields on investment-grade municipal bonds have risen to almost the same as similarly rated corporate bonds. That is a rare occurrence, considering municipal bonds have lower default rates and the interest is generally tax free. As of Tuesday, yields on corporate bonds were 3.37 percent and yields on municipal bonds were 3.33 percent, according to investment-grade indexes from Barclays. Typically, municipal bonds yield about 25 percent less than corporate bonds. Debt prices in general have weakened since May. The Federal Reserve has discussed slowing its easy-money policies as the economy improves, prompting long-term bond yields to increase.
