The $3.7 trillion municipal market is poised for its steepest monthly decline since 2010 as investors spooked by threats to the debt’s tax-exempt status withdrew the most money in almost two years.
Demand from individual buyers, who own about 70 percent of U.S. local debt, collapsed last week as yields set four-decade lows. At the same time, talks between President Barack Obama and congressional leaders over a deal to avert tax increases and spending cuts set to start in January included measures that may cap munis’ tax exemption. Investors pulled $2.3 billion from muni mutual funds this week, the biggest exodus since January 2011, Lipper US Fund Flows data show.
State and local debt has lost 1.9 percent this month, on pace for the worst return since December 2010, Bank of America Merrill Lynch data show. That’s when banking analyst Meredith Whitney predicted “hundreds of billions of dollars” of muni defaults, helping propel 29 straight weeks of fund outflows.
