Bleeding stops in US muni bonds as investors seek slowdown protection

Market competes with corporate debt and Treasuries after brutal sell-off this year

The pain in the US municipal debt market has finally started to subside after the worst start to the year in four decades, as cheap bond prices and fears about a slowing economy coax investors back.

This year to late May, investors pulled $57bn out of municipal mutual bond funds, according to EPFR data. The sell-off drove returns in the first quarter to negative 6.2 per cent, as measured by the Bloomberg municipal bond index, the worst quarterly performance since 1981. Losses persisted in April.