The route in municipal bonds continues

Prices of tax-exempt municipal bonds, particularly longer-term bonds, fell Thursday amid anxiety over forced selling and money flowing out of municipal bond funds.

Yields for 30-year triple-A rated general obligation bonds shot higher to 5.01% Thursday, according to Thomson Reuters Municipal Market Data. The last time those bonds yielded 5% was Jan. 30, 2009. Yields move inversely to prices. The yield on the 10-year bond jumped to 3.36%, the highest since June 15, 2009.

Yields on bonds maturing in 2017 through 2041 rose Thursday by 4 to 12 basis points, according to MMD.

"The market feels queasy," said Eaton Vance municipal bond portfolio manager Evan Rourke.

There are "hefty blocks out for bid" in the market, including $255 million in the range 2013-2036, said MMD's Randy Smolik.

Investors are concerned about the lists and continued outflows from muni bond funds. According to Lipper FMI, money has flowed out of municipal bond funds for eight consecutive weeks since the week ended Nov. 17. The most recent weekly data will be reported later Thursday.

Longer-term bonds for weeks have suffered from concern that more issuers will sell such bonds because they no longer can sell long-term taxable bonds through the Build America Bond program, which expired at the end of last year. Too much supply would overwhelm investor demand and force municipal issuers to raise their rates to attract buyers.

Indeed, new tax-exempt deals this week have had to offer higher yields to win over cautious investors. The New Jersey Economic Development Authority on Thursday sold a 2024 tax-exempt bond with a 5.37% yield, 39 basis points higher than the yield offered on a similar maturity Tuesday, the first day the bonds were sold to individual investors. The agency also shrank the size of the sale from the original $1.2 billion to about $712 million because of the tough conditions.

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Man's capacity for self delusion seems endless. These people seem to think this is a blip. It is not. This is the beginning of the end for the bond bubble. There is an ocean of debt out there that states and municipalities have managed to hide by fudging their bookkeeping. But people are starting to wake up.