NEW YORK Municipal bonds are leading other asset classes in performance so far this month, according to a Bank of America Merrill Lynch Global Research report released on Monday.
The investment bank's U.S. Municipal Master Index also found growing demand for lower-rated munis.
"We think the outperformance of BBB-rated munis and long-term munis for the month can be partly attributable to a desire on the part of investors to reach out to the BBB sector and long-term bonds for yield," BofA said in the report.
Munis returned 0.532 percent in the first half of June compared with 0.456 percent for U.S. Treasuries and 0.044 percent for corporates, BofA said.
The longer end of the muni curve, 22 years and longer, was the best performer among munis in June, returning 0.952 percent, according to BofA.
By rating, BofA said the BBB-rated category has had the best total return for June, at 1.087 percent.
For the year, the best performance in munis came in the 12- to 22-year part of the curve and in A-rated credits.
"All these doubts about default and bankruptcies have eased, with both running much lower than last year," said John Hallacy, Merrill Lynch's municipal research strategist in the report. "Investors, in time of volatility, are looking for stability."
Taxable Build America Bonds have returned 10.4 percent so far in 2011, which is partly attributable to their scarcity and longer average maturities, BofA said.
The popular BABs program, which gave issuers a 35 percent rebate on bond interest costs, expired at the end of 2010.
"Supply is lighter than last year," Hallacy said, but added that large amounts of rollover cash will be coming due.
In the same report, BofA reported that New York has surpassed California in new muni issuance so far in 2011.
New York issuers have sold about $11.4 billion of bonds, or 11.9 percent of total muni issuance, compared with 8.7 percent last year.
California, ranked No. 2 for this year, had been the largest issuing state in 2010. The main reason for its decline is that the state decided to wait to issue bonds until after its fiscal 2012 budget is enacted.
In the primary market on Monday, Siebert Brandford Shank priced for retail investors $260 million of New York State Dormitory Authority lease revenue bonds with a top yield of 4.25 percent in 2029, according to a market source. The bonds will be priced for institutions on Tuesday.
In the secondary market, prices were unchanged on Municipal Market Data's benchmark triple-A scale on Monday. Yields on top-rated 10-year bonds ended flat at 2.63 percent while 30-year yields remained at 4.23 percent, according to MMD, a Thomson Reuters company.
The new-issue bond and note calendar will total about $7 billion this week. The biggest issue is Georgia's competitive sale on Tuesday of $920 million of general obligation bonds. Georgia GOs are rated triple-A by Moody's Investors Service, Standard & Poor's Rating Service and Fitch Ratings.
(Reporting by Chip Barnett; Editing by Jan Paschal)