Wisconsin vote could help state bonds

Reuters ^ | June 6, 2012 | Joan Gralla

[SteelToe]

(Reuters) - Municipal bond prices fell and yields rose on Wednesday, squeezed by a retreat in the Treasury debt market, though yields remained near historic lows.

The municipal bond market usually surges in June and July, when bondholders often reinvest billions of dollars of coupon payments and redemptions. But that scenario might be dampened as a result of the current low interest rates, said Edward Reinoso, chief executive officer of New York-based Castleton Partners.

"The penalty for staying in cash is so minimal that it may be the better option instead," he said.

In the secondary market, the 10-year yield rose 7 basis points on Wednesday to 1.85 percent on the benchmark triple-A scale calculated by Municipal Market Data, a unit of Thomson Reuters. The 30-year yield climbed 7 basis points to 3.16 percent.

Those levels are still close to the scale's record lows of 1.67 percent in 10-years and 3.04 percent in 30-years.

Muni experts said demand might increase for Wisconsin's paper because Republican Governor Scott Walker's win in Tuesday's state recall election should give investors more confidence in his ability to enact tough fiscal policies.