Muni Bonds Set for Worst Month Since 1987 on Inflation Angst Amanda Albright Muni debt is poised for its worst monthly performance in nearly 40 years amid a global bond shakeout. Inflation concerns, fueled by the ongoing US-Iran conflict as well as fears of a hawkish Federal Reserve, have triggered a widespread bond rout. That’s rippled across markets, putting US state and local debt on track for a 4.7% loss this month, according to Bloomberg indexes.

It would be the sector’s worst monthly showing since 1987. Borrowers are postponing bond sales given the turmoil. Yields on benchmark debt maturing in one year have climbed over 100 basis points since the start of the month, while yields on the 30-year benchmark have climbed more than 60 basis points over the same period.

The rout has made state and local debt look cheaper compared to US Treasuries. Ten-year munis are offering about 80% of the yield on similar Treasuries. The 30-year muni-Treasury ratio, a gauge of relative value, has climbed to about 95%.

The higher that measure is the cheaper muni bonds appear. Alliance Bernstein portfolio managers Daryl Clements and Daniel Carpenter suggest investors lean into the down market, given the higher yields and more attractive valuations."If you liked munis yesterday, you have to love them today," they wrote in a note.