Adding to a string of recent tax-free debt gains, prices of AAA-rated municipal issues were up enough in light early trading to trim yields by as many as 3 basis points, according to a preliminary reading by Municipal Market Data.
The S&P cut caused a reverse to early gains in Treasury debt trading and spurred sharp losses, which then turned back to gains across the yield curve except for the 30-year bond.
S&P said it saw no clear path for US policymakers to deal with very large federal budget deficits and rising government indebtedness and that there was at least a one-in-three likelihood it could lower its long-term rating on the United States within two years.
The agency affirmed its AAA sovereign credit rating on the United States.
Tax-free debt issued by local and state governments has been under a cloud in recent months as worries about the fiscal health of issuers has preoccupied many individual investors, who have been pulling assets from muni-bond mutual funds for 22 straight weeks.