Tax-Exempts Set to Rebound

The $3.7 trillion municipal market is poised to recover from the lowest returns for August since 2007 as cash flowing to investors from maturing or refinanced local-government debt eclipses the sale of new bonds.

Munis have returned about 0.1 percent since July 31, the least for August in five years, Bank of America Merrill Lynch data show. The market earned 1.5 percent in August on average from 2001 to 2011, the most for any month. Yields on tax-exempts and Treasuries rose earlier this month as concern eased that Europe’s debt crisis was deepening. Local debt also suffered as new supply exceeded bond calls and redemptions by the most since 2010.

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