Munis See Biggest Rout in Nearly a Year as Economic Views Swing

(Bloomberg) -- Municipal bonds slid on Wednesday after investors across fixed income markets dialed back a flight to quality bid.

The biggest rout came in the middle of the curve with yields on 15-year benchmark bonds surging 13 basis points, the most in almost a year, according to data compiled by Bloomberg.

The longest-dated securities saw yields jump 10 basis points, erasing gains during the flight-to-safety rally earlier this month.

The moves mark a week of unusually high volatility in the state and local government bond market as investors reassess the rally in safer assets fueled by concerns of a recession. The swings come in what was slated to be one of the busiest weeks of issuance for munis, and drove Chicago to delay its $643 million bond sale that was expected to price on Wednesday.

“The whiplash volatility is being driven by a rapid change in investor expectation around the economy,” said Jason Appleson, head of municipal bonds at PGIM Fixed Income.

“After Friday’s jobs report the economic glass was half empty,” he said. “Now that investors have had some time to contemplate the macro economy is not melting down and micro fundamentals are strong, the cup is half full.”