(Bloomberg) -- The $3.7 trillion municipal market is headed for the longest losing streak since March after localities offered the most bonds in three months.

Interest rates for benchmark 10-year tax-exempt debt have climbed about 0.07 percentage point this week to 2.39%, data compiled by Bloomberg show. It’s the first two-week decline since March, which is also the last time the market absorbed as much issuance as this week’s $9.6 billion tally. Governments plan about $5 billion of sales next week.

The sell-off interrupted a rally, after munis rose in each of the year’s first five months. The tax-free market has still earned 6% this year, Bank of America Merrill Lynch data show. That’s better than Treasuries and corporate bonds.

“We saw an increase in new-issue supply, which quite frankly the market wasn’t used to,” said Fred Yosca, head of fixed-income trading at BNY Mellon Capital Markets LLC in New York. “Prices were vulnerable based on the run-up we had.”

Investors added about $307 million to muni mutual funds this past week, Lipper US Fund Flows data show. That’s less than half the average weekly inflow of $714 million last month.

While additions to mutual funds have ebbed, the inflow signals demand for the next few months, Yosca said.

Next week’s issuance includes $978 million of bonds from Georgia, the state’s biggest sale of new bonds.

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