The largest exchange-traded fund tracking municipal bonds traded at a discount to its underlying assets for the first time since July as states and cities flooded the market with the most borrowing in six months.

The iShares S&P National AMT-Free Municipal Bond Fund traded 0.46 percent below its net asset value Dec. 14, data compiled by Bloomberg show. The last time the price dipped below that was July 16.

The fund declined almost 2 percent to $111.05 last week. It was $110.92 per share at 10:35 a.m. in New York today, the lowest since Sept. 18.

The price drop in the fund, which has $3.5 billion of assets, reflects an increase in state and local borrowing that overwhelmed demand in the $3.7 trillion municipal-bond market, pushing up interest rates.

Yields on an index of 10-year benchmark municipals rose 0.22 percentage point to 1.6 percent last week, the highest since Nov. 7, according to Bloomberg data. Issuers from California to New York in the past two weeks issued about $20 billion of long-term debt, the busiest period since June, Bloomberg data show.

“It reflected the market’s difficulty in handling the heavy new-issuance calendar,” Matt Fabian, a managing director at Concord, Massachusetts-based Municipal Market Advisors, said in a telephone interview.

Moody’s Investors Service downgraded Puerto Rico to one level above speculative grade last week. Debt sold in the commonwealth is tax-exempt in all states, making it widely held. That action also contributed to the decrease in MUB’s value, Fabian said.

“General muni-market performance is inordinately dependent on Puerto Rico,” Fabian said.

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