Despite concerns of a rising rate environment, municipal bonds and related exchange traded funds continue to rally, with yields at their lowest in 11 months on a dearth in new local and state debt issuance.

The iShares National AMT-Free Muni Bond ETF (NYSEArca: MUB) has gained 5.3% year-to-date. [ETF Chart of the Day: Marvelous Munis]

Meanwhile, benchmark 10-year Muni bond yields are hovering around 2.35%, the lowest level since June, reports Brian Chappatta for Bloomberg. Bond prices and yields have an inverse relationship.

Munis have strengthened on renewed demand for fixed-income securities and the lowest new municipal bond issuance in three years, outperforming Treasuries, corporate debt and the broader stock markets.

State and local issuance through May 2 was only $86 billion, the lowest amount of new sales since 2011. On the demand side, investors have increased assets into muni-related funds in 12 of the 17 weeks this year, according to Lipper.

“High-grade munis is a momentum sector,” Vikram Rai, a fixed-income strategist at Citigroup Inc., said in the article. “It’s not cheap by any standard.”

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