Plagued by 13 consecutive weeks of outflows from municipal bond mutual funds, including August’s largest outflow this week, the municipal bond market headed lower for another session Friday.
Following weak housing data released Friday morning, Treasuries rallied, recouping Wednesday’s and Thursday’s losses. Muni prices refused to follow and ended flat to a couple basis points weaker.
“For the most part it’s status quo. There is a lot of selling pressure,” a New Jersey trader said. “We are not seeing the retail or institutional flow. Funds are under pressure and people are just waiting it out.”
This trader said bonds continue to get cheaper, and no market participant is eager to jump in and provide support. “Some guys are picking spots out but bonds off yesterday are still off today. There’s no rush to march stuff up. Even with a stronger Treasury market there are fundamentals that are consistently working against us.”
Still, one trader who is focused in the secondary market said a few buyers emerged to pick up cheap bonds. “Munis are getting a bid with Treasuries,” this New York trader said.
“I think for the day we could end flat,” a Virginia trader said. “Early in the morning things were softer, and then there was weak housing data and the Treasury market took off. But the muni market after lunch is just another quiet summer Friday.”
And while the supply calendar looks light next week with only about $4.5 billion, outflows from muni bond funds continue to plague the market. “Outflows are pumping paper back into the market even though the supply calendar looks manageable,” this trader said.
For the week ending Aug. 21 funds that report weekly had net redemptions of $2.14 billion.
In the secondary market, trades compiled by data provider Markit showed weakening. Yields on Collierville, Tenn., 4s of 2021 and New York 5s of 2036 rose three basis points each to 2.69% and 4.86%, respectively. Yields on Wisconsin 5s of 2023 increased one basis point to 3.12%.
On Friday, yields on the triple-A Municipal Market Data scale ended as much as three basis points higher. The 10-year yield increased two basis points to 2.96%. The 30-year was steady at 4.46% and the two-year finished flat at 0.43% for the 28th straight session.
Yields on the Municipal Market Advisors scale ended as much as one basis point higher. The 10-year yield rose one basis point to 3.10%. The 30-year was steady at 4.55% and the two-year was flat at 0.55% for the seventh session.
Treasuries posted gains Friday. The benchmark 10-year yield slid seven basis points to 2.83% and the 30-year yield slipped eight basis points to 3.80%. The two-year yield fell one basis point to 0.39%.
