NEW YORK — A heady rally in the municipal market Thursday has given way to a modest opening session Friday morning.
Traders are seeing roughly half the volume they normally would. And while activity in tax-exempts is quiet so far, taxables have seen interest with credits five years and in, said a trader in New York.
“There’s been a little over a billion traded on the day, about half of what we’re used to seeing,” he said. “There’s not much going on with tax exempts; we’re probably looking at a basis-point cut at this point.”
Tax-exempt yields, after impressive gains Thursday, were mixed Friday morning, according to the MMD scale. Bonds maturing through 2017, as well as between 2020 and 2027 are unchanged. Debt maturing in 2018 and 2019 is flat to one basis point lower. Maturities beyond 2027 are flat to one basis point higher.
Muni yields plummeted across all but the front of the curve on the day. The 10-year muni yield slipped seven basis points to 2.15%, its lowest level ever recorded on MMD. Its equivalent yield on the competing scale, Municipal Market Advisors, also reached a record low.
The 30-year muni yield also ticked down seven basis points to 3.78%, its lowest level since Oct. 25. The two-year muni yield remained at 0.30%, its lowest yield in more than 40 years.
Treasury yields started Friday almost flat. The benchmark 10-year Treasury yield inched up one basis point to 2.10%. On Thursday, it fell a few basis points below 2.00% briefly — a record — before softening.
The two-year yield also ticked up one basis point to 0.21, three basis points above its all-time low. The 30-year yield held steady at 3.44%.
The U.S. economy has driven investors away from municipal bond mutual funds. The week ending Aug. 17 saw $323 million in outflows from muni bond funds that report their flows weekly, according to Lipper FMI. The withdrawals are down from those of the previous week, when there were net outflows of $682 million.
High-yield muni funds also saw their fourth straight week of outflows — after seeing inflows for nine of the previous 11 weeks. Funds that report weekly saw outflows of $179 million, Lipper said. The previous week, high-yield funds reported outflows of $236 million.
