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Market Post: Munis Continue to Stabilize After Selloff

Traders continued to take relief in knowing the worst of the selloff appears to be over in the municipal bond market.

"I was lying in a pile of blood earlier this week," a Chicago trader said. "But the bleeding has stopped. It was painful to get here, but now all is well and things are back to normal."

He added that while the selloff was crushing, the market needed it. "We needed a change and higher rates. And the worst thing that can happen is we just rally a bunch. We need higher rates to keep buyers."

On Wednesday, the Municipal Market Data scale ended flat. The 10-year yield and the 30-year yield finished steady at 1.82% and 2.86%, respectively. The two-year finished flat at 0.31%.

Since hitting record low yields on Nov. 28, the 10-year MMD yield has jumped 34 basis points while the 30-year yield has soared 38 basis points.

Treasuries were slightly stronger Thursday afternoon. The benchmark 10-year yield fell two basis points to 1.79% while the 30-year yield fell one basis point to 2.98%. The two-year was steady at 0.28%.

Keeping with recent trends, trading activity increased this week as yields jumped. According to data on odd-lot trades for under $100,000 compiled by BondDesk Group, there was a 1.9 ratio of buy trades to sell trades for the week ending Dec. 19.That is well above the 1.6 ratio of buy to sell trades over the previous three weeks.

Looking closer into the number, there were 79,038 buy trades for the week, up from 66,976 buy trades the week prior and well above each of the previous five weeks. In comparison, there were 42,388 sell trades for the week ending Dec. 19, down only slightly from the previous week's 42,715. Still, sell trades were higher than each of the previous five weeks.

In terms of par amount traded, $2.210 billion of buy trades occurred for the week ending Dec. 19, up from the previous week's $1.903 billion and higher than each of the previous five weeks. Sell trades for also higher with $1.301 billion in sell trades for the week ending Dec. 19, up from the previous week's $1.294 billion and higher than each of the previous five weeks.

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