The market for tax-exempt bonds remained stalled through the afternoon on Monday, continuing a sluggish morning that saw investors hesitate on the heels of the 13th straight week of outflows from municipal bonds funds.
Refreshed concerns over the weekend about the stability of Puerto Rico's credit caused demand for those bonds to ebb today, traders said.
"Puerto Rico is in disarray," one trader in New York said. "It's been a mess for a while and it's even worse. It's been a struggle to move Puerto Rico product already and it's only going to be worse going forward."
Another trader in New York said renewed skepticism over the weekend about the health of the U.S. territory's economy led to retail investor unease.
"We're getting some calls from people asking what's going on," he said. "Right now we're just going to have to wait and see where that stuff trades, it could be of concern.
The municipal bond market remains disorderly, Municipal Market Advisors said in a report this morning. Negative credit headlines about Puerto Rico, fund selling pressure and end-of-summer illiquidity plague the market, according to the firm's weekly outlook.
Traders on vacation the week before Labor Day also added to the late-summer doldrums.
"There's very little activity," said another New York-based trader. "There are still concerns over where we're headed. Outflows just add to it — if you're on the fence, you hold tight and see where it goes. This morning is back to school and back to reality."
Treasuries tilted back from earlier gains, with the benchmark 10-year yield up one basis point from this morning to 2.81% and the 30-year yield up half a basis point to 3.79%. The two-year yield remained steady at 0.38%.
Yields on the triple-A Municipal Market Data were steady from 2014 out to 2035 as of approaching midday. Beyond 2035, yields ranged from steady to as much as one basis point lower.
