Muni yields fall as investors seek shelter A post-election buying spree in US municipal bonds has pushed yields to their lowest level in 45 years, as investors look for shelter from tax rises expected in the new year. Political pundits and investment advisers alike are predicting increased taxes on income, including from dividends, and on capital gains, at least for higher-rate taxpayers. IN Bonds & Rates Data The rises are expected to be part of a wider budget deal to cut the federal deficit and avert a fiscal cliff of tax rises and spending cuts that will otherwise kick in automatically at the end of this year. "Investors are expressing hopes and fears with their dollars," said Steve Winterstein, managing director and chief strategist of municipal finance at Wilmington Trust Investment Advisors. Since President Obama won re-election, there's been concern about rising taxes next year, and municipal fixed income is the one place where investors are able to protect their assets from rising taxes. But the rally is also coming in sympathy with the recent flight to quality we've seen in the past couple of days. There's been unrest in the Middle East, another bout of worries in Europe and a stock sell-off. As Treasury prices rose, so did munis," he said. The Barclays municipal bond index, created in 1980 to measure a broad range of local authority-issued debt, recorded its low yield to date of 1.96 per cent on Monday night, having continued its downward trend even as investors shifted back out of other haven assets and into the equity markets. Last week, a Bond Buyer index measuring 20-year general obligation bonds from municipalities across the US recorded a 3.41 per cent yield, the lowest since 1967. The index is calculated every Thursday. The yield stood at 3.67 per cent before the presidential election on November 6. Peter Hayes, head of the municipal bond group at BlackRock, said that investors were concentrating their buying in longer-dated bonds. "The focus has been on intermediate and long-dated bonds, because this is the sector of the market that offers the most yield and people are still comfortable with the premise that interest rates are not going to rise substantially any time soon," he said. The tax-exempt status of municipal bonds is designed to make it easier for local authorities to find financing for general services and for specific infrastructure projects. Rising taxes on other investments make munis relatively more attractive to investors. A 15 per cent tax rate on dividend income is due to expire at the end of this year, reverting to the same rate as ordinary income, which could be twice as high for higher-rate taxpayers. Municipal bond income is also exempt from a surtax introduced to pay for President Barack Obama's healthcare reforms.