Lack of new bonds and persisting economic woes drove municipal yields down Friday, capping a three-week really that gave bonds the strongest start to a year since 2009.
Yields on 10-year AAA general obligation bonds have fallen 32 basis points since the beginning of the year, according to Municipal Market Data. The rally is the strongest start to a year since 2009, when 10-year yields plunged 48 basis points by Jan. 23.
"Every morning I wake up wanting to buy something, expecting it to sell off, but I can't right now," a New York-based trader said in an interview. "Every time you think the market's going to fall off this week, it rallies. There's much more money available for investment right now."
The municipal market, which rallied early in the week as participants scrambled to get new issue paper, was further bolstered on Friday as skepticism about the world economy seeped from conversations at the World Economic Forum in Davos, Switzerland.
"We're reacting to the stock market and whatever crisis is going on," a trader in New York said in an interview. "There is a flight to quality; it's more of a world-wide situation. The world economy is not as strong as everyone was making it out to be, and that's probably what is going on in Davos."
U.S. stocks as measured by the Dow Jones Industrial Average fell for the third day Friday. The Standard & Poor's 500 index also slipped. Municipal bonds, which often move inversely to equities markets, rallied by seven basis points on ten- to 20-year maturities, according to MMD.
Municipal Market Advisors reported yields sloping by five basis points on the ten-year, as well as on bonds maturing from 2021 to 2029.
"It feels very firm," a New York-based trader said. "People are reaching for yield, people are sticking to quality paper as opposed to looking at junk paper at this point."
Municipal bond mutual funds reported inflows for a second week Thursday, with the market investing $86 million in the week ended Jan. 22, according to Lipper FMI data.
Treasuries also slid, with the 10-year yield sliding five basis points to 2.74% and the 30-year falling three basis points to 3.66%. The two-year fell three basis points to 0.35%.
Total bond sales this week came to $4.57 billion, according to Thomson Reuters data. Volume next week could reach $4.89 billion, according to Bond Buyer and Ipreo data.
Trading in the secondary market was stronger Friday, according to data provider Markit.
The yield on Connecticut special tax obligation revenue bonds with a 5% coupon maturing in 2025 dropped four basis points to 3.05%, while Port Authority of New York and New Jersey consolidated bonds with a 5% coupon maturing in 2030 fell three basis points to 3.52%..
Missouri Health and Educational Facilities Authority bonds with a 4% coupon maturing in 2042 slid two basis points to 4.93%, and New Jersey Farmland Preservation Funding refunding bonds with a 4% coupon maturing in 2023 fell one basis point to 2.73%.
