Activity in the tax-exempt municipal market was light Monday afternoon as traders tried to assess the effect of Detroit's historic bankruptcy.
"We're having a hard time figuring out where we are at the moment," said a trader on the west coast. "We may still be getting some retail reaction from the Detroit bankruptcy, it's hard to tell. I think it'll take at least a few days to see what kind of ripple effect Detroit and outflows from funds has, those are going to have the biggest effect."
Municipal bond mutual funds reported outflows for an eighth week last week, according to Lipper FMI. Those funds that report flows weekly recorded outflows of $1.56 billion from muni bond funds for the week ended July 17, the data show, up from the $1.20 billion investors withdrew the previous week.
Though Detroit's problems have been long in the making, Friday's bankruptcy announcement still may be keeping retail investors at bay, one trader in New York said.
"I think lower-quality stuff may be hurting a little bit after Detroit," said a trader in Chicago. "People are hesitant, we've had different shocks to the system before, but this was a slow-moving accident and now we're cleaning up the mess."
The trader added that he sees bonds trading at a basis point or two cheaper from ten years and out on the curve, with bids coming in more cautiously than normal.
Tax-exempt yields were mostly unchanged, according to the Municipal Market Advisors 5% scale. Yields were steady between one and 23 years, while those with yields beyond 24 years climbed as much as a basis point.
Outflows from muni bond funds applied some pressure to a market Monday that was still looking to assess the impact of disconnect between stronger Treasuries and weaker muni yields. That disconnect may have contributed to stable yields Monday, the west coast trader said.
"After last week's selloff, the long-end is appearing better positioned for near-term strength," Municipal Market Advisors said in a report. "Losses from Detroit are just not sustainable. However, anything more than a minor move is unlikely."
This week's calendar is scheduled to be lighter than the previous week, according to estimates from Ipreo LLC and The Bond Buyer. Potential volume for this week is expected to total $5.54 billion, down from total sales of $8.32 billion last week.
Negotiated sales this week are expected to total $4.30 billion, compared with a revised $6.33 billion last week. Bonds scheduled for competitive sale this week will reach $1.24 billion, down from $1.99 billion sold last week.
In other economic news, existing home sales slowed to 5.08 million a year in June, 1.2 % lower than the 5.14 million pace the previous month, the National Association of Realtors announced Monday. The rate was weaker than the median 5.25 million rate estimate of economists polled by Thomson Reuters.
Treasury yields continued to be firmer at the back of the curve on Monday, with the benchmark 10-year yield at 2.48%, down four basis points from 2.52% on Friday. The 30-year fell five basis points to 3.55% from 3.60%, while the two-year yield remained at 0.31%.
