Localities’ Debt Now Outperforms States’

Debt of U.S. cities and towns is poised to beat state securities for the first time since 2009 as localities’ higher yields and efforts to cut workers lure investors in the $3.7 trillion municipal-bond market.

School districts, counties and cities have been more aggressive than states in cutting employees to lower costs in the past four years following the worst recession since the 1930s.

They also tend to have higher bond yields even for similarly rated securities, drawing buyers contending with the lowest interest rates since the 1960s.

Local debt yields 3.1 percent on average, about 0.7 percentage point more than state borrowings, according to Bank of America Merrill Lynch indexes that track each segment and have the same credit grade. City and town debt has earned 6.2 percent this year, compared with 4.9 percent for state bonds, the bank’s data show.

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