Yields on auction-rate munis fall

U.S. municipal borrowers pushed down yields on auction-rate bonds to the lowest in 11 weeks by moving to eliminate at least $56.5 billion, or 34%, of the debt they had in the market.

Local governments disclosed plans to redeem about 150 tax-exempt auction issues totaling $8.3 billion last week, according to investment bank Siebert Brandford Shank & Co. That’s the most since the $166-billion municipal auction market began falling apart in February, the firm said.

States, cities and hospitals are replacing the securities and bidding for their own bonds at auctions that set yields to cut interest costs that rose as high as 20%.

The average rate on bonds reset weekly fell 2.55 percentage points to 4.34% from a record 6.89% on Feb. 20, a Securities Industry and Financial Markets Assn. index shows.

In February, investors fled the market -- where rates are set at bidding every seven, 28 or 35 days -- on concern that the creditworthiness of bond insurers that guaranteed the debt would deteriorate because of losses the guarantors sustained on securities tied to sub-prime mortgages.

Municipal bonds accounted for about half of the $330 billion in auction-rate securities at the end of 2007, according to a Bank of America Corp. report.