Investors found value in the long-end of the curve as yields for bonds maturing in over 20-years dropped on Monday.
Yields for bonds maturing in 16- to 30-years fell by three basis points, according to Municipal Market Data. The short-end of the curve held steady, and yields five to 15 years out declined less than the long-end, dropping as much as two basis points.
"Longer bonds are reading as somewhat overbought but with more positive momentum," Municipal Market Acess said in a report. "If nothing else, this shows long end prospects are better than at any time in the first quarter."
Yields on the long end of the curve began falling on Friday after the employment situation report was released, as seven- to 30-year maturities decreased as much as five basis points.
The employment situation report showed the unemployment rate had stayed at 6.7% in March, and while nonfarm payroll jobs had improved from February they were up only 192,000, lower than the 215,000 gain analysts had predicted.
"The unemployment number came out last Friday," a trader in Dallas said. "It was weighing heavy on the market so now we are getting some relief."
Barclays said in a report Friday that bonds at the long end of the curve were experiencing heavy demand, but were still an attractive investment.
"We remain constructive on long munis, although investors may be unwilling to add duration, given the strong year-to-date rally in long munis," Barclay's said.
Traders said prices on the long end might be improving because the short-end of the curve has been so rich this year.
"Yields on the long end of the curve are falling probably just because investors do not want to buy on the short end," a West Coast trader said.
A trader in Chicago even said that the brief rally on the short end of the curve on Friday, when yields from three to six years decreased by as much as three basis points, was a flight-to-quality that probably was driven by this year's low issuance.
"It continues to be that market participants don't like these yields — they don't trust them but they continue to have to put money to work," he said.
The muni market also benefited from a sell-off of technology stocks.
"The market is improving because the stock market is off by 102 points," a trader in Dallas said. "When people flee from equities they go into fixed income."
Issuance this week is expected to be almost $2 billion larger at $5.4 billion than last week's $3.2 billion, according to Ipreo and The Bond Buyer. That would be the heaviest week of issuance since the week ending March 14, when $3.5 billion of Puerto Rico general obligation bonds and $1.69 billion of California GOs boosted issuance to $11.4 billion.
"I think [this week's issuance] is great for the market," the Chicago trader said. "Whenever there is above $5 billion there is more price discovery."
Issuance has been weak this year, totaling $62.5 billion in the first quarter compared to $84.4 billion in the same time frame last year. Excluding the week of March 14, weekly issuance has generally hovered between $3 billion and $4 billion.
"Maybe the higher issuance this week will shake things up a bit," according to the Chicago trader.
Strategists believe potential new issuance this week will create some buying opportunities.
"We now approach the tail-end of our near-term cautious outlook to the market, which may afford investors an opportunity to add exposure during periods of potentially increased issuance prior to the arrival of the summer months (next week's calendar is modestly higher at $5-$6 billion)," Morgan Stanley said in a report Friday.
Bank of America Merrill Lynch held the second day of retail pricing on the week's largest deal, $650 million New York City Transitional Finance Authority future tax- secured subordinate bonds.
Yields ranged from 0.63% with a 3% coupon in 2017 to 4.25% at par maturing in 2041. The bonds are callable at par in 2024. The bonds are rated Aa1 by Moody's Investors Service and AAA by both Standard & Poor's and Fitch Ratings.
Wells Fargo Securities will issue $220 million of GOn bonds for the University of Connecticut. The bonds mature serially from 2015 to 2034 and carry a Aa3 rating from Moody's, a AA rating from S&P and a AA-minus from Fitch. The retail-order period was scheduled to begin on Friday and continue Monday.
"People are looking at the University of Connecticut deal, and they're going to escalate that and do the institutional pricing this afternoon," the trader in Dallas said.
Municipal yields for the two-year were steady at 0.41%, as the 10-year dropped by two basis points to 2.49% and the 30-year by three to 3.92%, according to MMA data.
Treasuries yields fell Monday, with the 30-year and the two-year notes sliding one basis point each to 3.56% and 0.41%, respectively.
The 10-year benchmark slipped two basis points 2.70%.
