Municipal bonds rallied Friday for a fourth straight day, capping an 2nd week of gains as demand outpaces new supply.
Yields on bonds maturing in two-years fell by three basis points Friday, and maturities from nine-to 12-years dropped by two basis points, according to Municipal Market Data's triple-A scale.
"I think some of the credit headlines we've been dealing with have laid down for a while, and supply is still super manageable," a trader in Virginia said. "And with some macro risks floating around out, there is plenty of support for munis, especially at these supply levels."
So far this month, the two-year had fallen three basis points to 0.35%, the 10-year dropped by four basis points to 2.28%, and the 30-year has declined by seven basis points to 3.54%, according to Municipal Market Advisors' data.
Alan Shankel, managing director at Janney Capital Markets, wrote in a report released on Friday that municipal bonds have seen particular strength on the long-end on the curve.
"There's been a rally in the marketplace and, with the continued lack of supply, it's been tougher to find value," Fred Bacani, head of fixed income & trading at Veritable LP in Newtown Square, Pa., said.
A trader in Pennsylvania said deals are being priced up because there are no bonds coming to market and there is a lot of cash.
"Munis are great right now," a trader in California said. "There might be some sticker shock because rates are low, but they've been close to this low for a while. The more time you have, people become acclimated to the rate environment, and cash is trash and two percent is better than no percent."
The largest deal of the week the Illinois State Toll Highway Authority bonds was increased to $500 million from a scheduled $450 million.
"We like the intermediate part of the curve, it's a fairly priced intermediate sector," Bacani said.
Demand for municipal bonds will remain high through May and June, investors predict.
"There's going to be a food fight for any issuance that is coming," the trader in Virginia said.
Treasuries weakened Friday, with the 30-year yields jumping three basis points to 3.347% and the 10-year benchmark inching up one basis point to 2.63%. The two-year notes were unchanged at 0.40%.
