US muni bond sales drop 15 pct in 2013 - preliminary data

Fri Dec 27, 2013 2:06pm EST

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Dec 27 (Reuters) - U.S. municipal bond sales fell 15 percent to $311.7 billion in 2013 versus 2012 as refundings of existing debt declined by 28.5 percent, according to preliminary data released by Thomson Reuters on Friday.

But this year's bond sales by states, cities, schools and others in the municipal market exceeded 2011's $277.2 billion level, which was the lowest since 2003.

Rising interest rates caused a drying up of refundings, in which issuers swap cheaper debt for pricier outstanding bonds. Refundings totaled just $161.6 billion this year versus nearly $226 billion in 2012.

Muni bond yields rose faster than other fixed-income asset classes, S&P Dow Jones Indices reported on Friday.

Yields on top-rated, 10-year muni bonds ended Thursday at 2.75 percent, compared to 1.78 percent at the beginning of 2013 on Municipal Market Data's benchmark scale. Yields on triple-A-rated 30-year bonds, which began the year at 2.86 percent, stood at 4.19 percent on Thursday.

In September, the 30-year yield spiked to 2013's high of 4.51 percent, according to MMD, a unit of Thomson Reuters.

Debt sales perked up in December at $24.1 billion, topping the $22.8 billion of debt sold in November, but lagging December 2012's $25.5 billion in sales, the preliminary Thomson Reuters data showed. This month included the year's biggest burst of weekly bond sales - $13.2 billion the week of Dec. 9.

April was the biggest month for bond sales with $35.9 billion, while September was the lowest at $18.7 billion. Muni sales in the fourth quarter rose to $73.3 billion from $68.15 billion in the third quarter.

The $3.7 trillion muni market was bedeviled by worrisome news in 2013 and overall it has lost 2.57 percent on a total return basis so far this year, S&P Dow Jones Indices reported.

"Detroit's bankruptcy filing, the state of Illinois' unfunded pension obligations and the sinking feeling of economic distress in Puerto Rico have combined to help drive retail investors away from municipal bond funds," S&P Dow Jones said.

Funds specializing in muni debt, which are popular with retail investors, posted net outflows of $1.5 billion for the week ended Dec. 25, Lipper said on Thursday. That marked the 31st straight week of outflows for the funds, which have been hit with nearly $59 billion of net outflows so far this year.

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