Low issuance may be propping up the municipal market, stabilizing prices after a bout of interest-rate concerns.
Yields for maturities in four- to nine-years fell one basis point on Friday, while yields for bonds maturing in under three years and from 10 to 20 years were unchanged.
"Right now the market is starved for supply," a financial advisor on the West Coast said. "We are in a very favorable situation in terms of supply and demand."
Yields are dropping after the short and intermediate parts of the curve sold off for five straight days following comments Federal Reserve chair Janet Yellen made during a press conference on March 19.
She said the Fed was looking to raise interest rates in April 2015, sooner than investors had previously projected.
From March 14 to March 21 yields for two-year bonds jumped 10 basis points to 0.4%, 20 basis points to 1.28% for the five-year, and 11 basis points for the 10-year to 2.56%, according to data provided by Municipal Market Advisors.
The long end of the curve remained stable increasing by only five basis points to 4.03%.
Then on Wednesday the market began to stabilize and yields began dropping. On Friday yields for the 10-year had dropped four basis points to 2.52% from March 21, while the five-year remained fairly stable at 1.3% and the two-year at .041%, according to data from Municipal Market Advisors.
Investors said the market steadied because of low issuance this year.
"There's been a lot of money across the board with buyers and not enough supply," a North Carolina trader said. "Every week there are three or four mega deals that make the week seem large. We need $8 to $10 billion more supply a week. Investors are not being fully allotted."
This year there have been $33.66 billion of bond sales for January and February 2014, compared with $51.68 billion for the same period in 2013, according to The Bond Buyer.
The total potential volume scheduled for next week's new-issue calendar is $4.19 billion, down from this week's $4.78 billion issuance.
"Issuances are way down," said Tom Dalpiaz, managing director at Grantite Springs Asset Management. "If you look at visable supply numbers over the next 30 days, they are back to close to lows for the year."
Bank of America Merrill Lynch received the written award on $236.3 million Orlando, Fla., contract tourist development tax payment revenue bonds. Yields ranged from 0.59% with a 4% coupon in 2016 to 4.19% with a 5% coupon in 2044.
The bonds are callable at par in 2024 with a lot sinking fund for the 2039 and 2044 term bonds. The bonds received a Aa2 rating from Moody's and AA-plus from Fitch.
Treasury yields strengthened Friday, as the 30-year yields and the 10-year benchmark gained by one basis point each at 3.55% and 2.72%, respectively. Two-year notes were unchanged at 0.46%.
Muni yields 22-to-30 years out rose by up to two basis points on Friday.
