Muni Bonds Fall for 13th Day Amid Hedge-Fund Squeeze

[Celebration]

While the treasuries were rallying today like there was no tomorrow, the municipal bonds were imploding.

http://www.bloomberg.com/apps/news?pid=20601087&sid=aWWO0Lh1nDaA&refer=home

U.S. municipal bond yields rose for a 13th day on investor concern that hedge funds may be selling holdings squeezed by rising floating rates on notes they issue and declining values on long-term debt used as collateral.

Hedge fund managers sought to sell as much as $3 billion of municipal securities, traders said. ``Bids wanted'' totaled $1.1 billion yesterday, breaking $1 billion for the third time this month, after averaging $600 million the past 90 days, according to a Bloomberg index.

``Market values are being marked down so much that in order to meet margin calls, some of the entities out there have had to liquidate muni bonds,'' said Narayan Prasad, president of Anchor Capital Group, a municipal hedge fund in New York. ``That has resulted in a spiral in which the liquidation of muni bonds has already depressed prices in an unstable market.''

Institutional investors seeking to profit from the gap between ordinarily low variable short-term rates and higher yields on long-term debt are getting squeezed as prices on long- term tax-exempt bonds fall. Yields on top-rated 30-year bonds rose to 4.99 percent today, the highest in almost four years, as U.S. state and local governments plan to sell $20 billion of new bonds in the next 30 days, the most since December.

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