Muni Market Shows Weakness

There has been talk about a bubble in the muni market, but generally speaking they have performed well. Just recently though it appears some fear is creeping into the market:

June 30 (Bloomberg) -- Municipal bonds underperformed U.S. Treasuries in the first half as default speculation drove state and local government yields to the highest level relative to government bonds in 13 months.

Ten-year municipal bond yields rose to 100 percent of Treasuries for the first time since May 2009, from 80 percent six months ago, according to Municipal Market Advisors data. Investors bought Treasuries, pushing two-year yields to a record low this week, on signs of slowing global economic growth and amid protests in Europe over austerity measures.

The cost of contracts insuring against losses in municipal bonds almost doubled in the past two months, led by Illinois. Greece and Spain led a surge in the cost of protecting sovereign debt.

The market for munis is over 2.8 trillion so this isn't chickenfeed!