The Muni Bond Market Signals Danger Ahead

Municipal bond issuance dropped to an 11-year-low in January. It has not picked up substantially in February, according to the muni bond people I speak to. January saw $12.2 billion of new debt, a decline of nearly 63 percent from January 2010. Volume hasn’t been this low since January of 2000. The standard explanation for this is the end of the Build America Bond program, which offered qualified issuers a 35 percent federal tax subsidy to issue taxable debt. But the BABs—the bonds' colloquial name—accounted for just 24 percent of the $757.6 billion of state and local debt issued from...