Who would have thought? Muni bond yields hit a 42 year low!

Bloomberg is reporting that American municipal bond yields hit a 42-year low. This is news because municipalities are supposed to be the hardest hit portion of government (since many rely on property taxes, service fees, and the like.) Yet, it appears new issues have slowed while capital seeking muni bonds has increased.

Benchmark borrowing costs for highly rated state and local governments dropped to a 42-year low this week, as the pace of new municipal-bond issues slowed and cash flowing into mutual funds accelerated to a record.

Municipal issuers led by Ohio sold about $5.7 billion of fixed-rate bonds with final maturities longer than 18 months, down from $9.9 billion last week, according to data compiled by Bloomberg. California sold $8.8 billion of notes to be paid off by the end of its fiscal year that began July 1 at yields of 1.5 percent and 1.25 percent.

The weekly Bond Buyer 11-Bond index, which tracks tax- exempt yields on 20-year general-obligation debt with an average Aa1 rating, fell 14 basis points, or 0.14 percentage point, to 3.79 percent, its sixth straight decline. That’s the lowest since May 1967, when Lyndon B. Johnson was U.S. president.

Part of the reason is because of Federal government subsidies but it's still amazing that muni bonds are doing so well.