The Municipal Market Data 30-year tax-exempt bond yield reached a new record low of 2.44% earlier this week, fueled by strong investor demand for safer assets and a dearth of supply as hospitals and other municipal borrowers refrain from taking on debt.

July 5, 2016 Update: The 30-year “AAA” G.O. MMD reached a record low of 1.94%.

It’s official: the yield on the U.S. 30-year Municipal Market Data (MMD) triple-A G.O. index fell for the second stright day yesterday to reach 2.44%, beating its November 2012 record of 2.47%.


Demand for municipal bonds is up as domestic and foreign buyers move away from riskier asset classes and general market volatility, fanning the rally (bond prices move inversely with yield).

According to Lipper, municipal bond funds saw their 32nd straight week of inflows, adding up to $22.1 billion for this year.

When combined with compressed hospital credit spreads, this low MMD makes for the lowest all-in cost of debt anybody can remember in the healthcare bond markets.

Unlike what some had expected, this interest rate environment has not led to more supply. Tax-exempt bond supply is down 10% from last year.

Tax-exempt borrowers continue to avoid issuing “new money” bonds, preferring to pay down or refund existing debt.

Supply has also eroded due to bank placements which continue to siphon debt away from the public bond markets.

As a result of imbalance between buyers and sellers, municipal bond issues are being snapped up like hot cakes, with some offerings seven times oversubscribed.

It’s hard to predict what will happen to rates, but once the presidential election is over, some speculate that borrowers will return to the municipal debt markets to fund much-needed infrastructure projects.

Compared to other municipal sectors, healthcare has had additional concerns to deal with, including the future of reform and government reimbursement, but given the favorable interest rate environment, more hospitals could return to the debt markets later this year with refundings and new money bonds.