(Bloomberg) -- States and local governments boosted debt sales to $43.7 billion so far in December, the highest monthly total in at least a year.

U.S. municipal bond sales this month are up 24% from $35.2 billion in December of 2013, according to data compiled by Bloomberg. Issuance is 26% higher than last month’s $34.7 billion. The second-biggest month for new issues this year was July, when they reached $38.8 billion, the data show.

While sales are increasing, the $3.5 trillion municipal- bond market has shrunk every month this year, according to Bloomberg data. A total of $49.3 billion is set to be redeemed or mature in December, compared with $35.5 billion last month, when municipal bonds contracted by $717 million.

Sales are set to increase in the next month as will the amount of redemptions and maturing debt. States and localities plan to issue $6.4 billion over the next 30 days, according to Bloomberg-compiled data. A week ago, the calendar showed $3.9 billion planned for the coming month. Supply figures exclude derivatives and variable-rate debt. Some municipalities set their deals less than a month before borrowing.

Municipalities have announced $15.8 billion of redemptions and an additional $10.3 billion of debt is coming due in the next 30 days, compared with the $26.2 billion total that was scheduled a week ago.

Issuers from Illinois have the most debt coming due with $2.27 billion, followed by New York at $1.01 billion and Indiana with $801 million. The state of Illinois has the biggest amount of securities maturing, with $944 million.


In the week ended Dec. 17, investors added $950 million to mutual funds that target municipal securities, compared with $1.1 billion in the previous period and the one-year average of $385 million, according to Investment Company Institute data compiled by Bloomberg.

State and local debt maturing in 10 years yields 97% of Treasuries, Bloomberg data show. On Dec. 19, the gap was 97.5%. Historically, the tax advantage of municipal debt meant that these bonds yielded less compared with Treasuries.

Bonds of Michigan and California had the best performance in 2014 compared with the average yield of AAA rated 10-year securities, the data show. Yields on Michigan’s notes narrowed 19 basis points to 2.39% while California’s declined 9 basis points to 2.37%.

Puerto Rico and New Jersey handed investors the worst results. The yield gap on Puerto Rico notes widened 48 basis points to 9.47% and New Jersey’s rose 15 basis points to 2.70%.

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