(Bloomberg) - A top BlackRock executive suggests scaling back on lower-rated municipal debt even as the bonds rally the most in almost five years.

Investors in the $3.7 trillion municipal market are buying riskier issues for their higher yields as interest rates on 20- year bonds remain below their five-decade average. The extra yield investors demand to buy 10-year tax-exempt munis rated BBB, or eight steps below top-grade debt, has shrunk to 0.97 percentage point, close to the least since September 2008, data compiled by Bloomberg show.

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