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Pandemic Drives Municipal Borrowing to 10-Year High

Pandemic Drives Municipal Borrowing to 10-Year High

Municipal bond issuance in 2020 was the highest in a decade, reflecting the collapse of interest rates and the increased costs cities and state govern

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Municipal bond issuance in 2020 was the highest in a decade, reflecting the collapse of interest rates and the increased costs cities and state governments are facing from Covid-19 shutdowns.

Bonds for new projects reached $252 billion last year, according to Refinitiv, a small increase from the previous year. The new borrowing drove the total amount of outstanding muni debt above $3.9 trillion for the first time since 2013, according to the Federal Reserve data from the third quarter.

The muni issuance boom is unlikely to abate as cash-strapped local governments struggle to make up for ongoing Covid-19-related shortfalls and pay back old debts. Before the pandemic, many city and state governments had already been operating on tight budgets.

Despite the increase in availability of muni bonds, investor demand remains strong. Central bank rate cuts have left investors clamoring for yield. Muni bond investments produced steady returns last year in a low-interest rate environment.

“There’s no yield anywhere so munis are still attractive on a relative basis,” said Jon Barasch, director of municipal evaluations at financial analytics company ICE Data Services.

This post first appeared on wsj.com

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