Market Post: Munis Gain on World's Economic Woes

Municipal bonds extended a three-day rally Friday morning as investors looked for safer bets for their money in the wake of plummeting equities and currency markets.

"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."

Business, economic and political leaders met this week at the World Economic Forum in Davos, Switzerland, to discuss the future of financial markets as many of the world's leading nations emerge from crises.

U.S. stocks, as measured by the Dow Jones Industrial Average, fell for the third day Friday. The Standard & Poor's 500 index also fell. Municipal bonds, which often move inversely to equities markets, rallied by as much as six basis points on medium- to long-term bonds, traders said.

"Every morning I wake up wanting to buy something, expecting it to sell off, but I can't right now," the New York-based trader said. "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."

Muni bond yields on the Municipal Market Data triple-A scale plunged across the curve Friday morning, with yields falling as much as six basis points on bonds maturing beyond eight to nine years.

The MMD 10-year triple-A benchmark yield has fallen almost 30 basis points since Jan. 1, while the 30-year benchmark on MMD has fallen by more than 40.

Treasuries yield also slid, with the 10-year sliding six basis points to 2.73% and the 30-year falling three basis points to 3.69%. The two-year fell three basis points to 0.35%.

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