The municipal bond market continued its firmer tone on Friday, capping what has been a 20-session streak of steady to lower yields.

Tax-exempt yields set new record lows on the long end this week as demand continues to outweigh supply.

“We are much stronger, but the market is starting to slow,” a New York trader said. “It’s dead now,” he added, saying traders usually cut out early on Friday afternoons in the summer.

Munis were much stronger Friday afternoon, according to the Municipal Market Data scale. Yields inside four years were steady while the five- to 11-year yields dropped two and three basis points. Outside 12 years, yields plunged four and five basis points.

For the week, the two-year fell one basis point to 0.31%. The 10-year yield dropped four basis points to finish at 1.70%, closing three basis points above its record low of 1.67% set Jan. 18. The 30-year yield fell 10 basis points throughout the week to 2.86%, setting a new record low. The previous record was 2.90% set Thursday.

Friday marked the 20th consecutive trading session where munis have traded steady or firmer. Since this most recent rally began on June 22, yields on the 10-year have fallen 16 basis points while the 30-year yield has plunged 30 basis points.

Treasuries were much stronger on Friday. The benchmark 10-year plunged six basis points to 1.46% while the 30-year yield plummeted seven basis points to 2.55%. The two-year was steady at 0.22%.

Since the most recent rally began on June 22, ratios have risen on the short and intermediate part of the curve as munis underperformed Treasuries. Munis rallied, but lagged the Treasury rally. The five-year muni-to-Treasury ratio jumped to 119% on Friday from 105.3% on June 22. The 10-year ratio increased to 116.4% from 111.4%.

Ratios on the long end fell as munis outperformed their taxable counterparts. The 30-year ratio fell to 112.2% on Friday from 114.9% on June 22.

The slope of the yield curve has flattened since the beginning of the year and continued that trend since June 22. The one- to 30-year slope flattened to 266 basis points on Thursday from 296 basis points. The one- to 10-year slope flattened to 150 basis points from 166 basis points on June 22.

Credit spreads have compressed as investors reach down the credit scale in search for yield. The five-year triple-A to single-A spread compressed to 63 basis points on Friday from 66 basis points on June 22. The 10-year spread narrowed to 81 basis points from 82 basis points in June. The 30-year spread came in to 72 basis points, down from 80 basis points on June 22.

In the secondary market Friday, trades compiled by data provider Markit showed firming. Yields on California 5.25s of 2029 dropped three basis points to 3.22%.

Yields on Pennsylvania 5s of 2025 and New York City Transitional Finance Authority 5s of 2035 each fell two basis points to 2.29% and 3.04%. Yields on Austin Water and Wastewater System 5s of 2042 and JEA Water and Sewer System 4s of 2043 each dropped two basis points to 3.18% and 4.01%.

Looking to next week, $6.25 billion is expected to hit the primary market, down slightly from this week’s revised $7.91 billion. In the negotiated market, $4.71 billion is expected, down from this week’s revised $5.42 billion. On the competitive calendar, $1.54 billion is expected to be auctioned, down from this week’s revised $2.49 billion.

Subscribe Now

Independent and authoritative analysis and perspective for the bond buying industry.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.