The modest supply scheduled for this week may hurt investors' hunt for high-yield, according to market participants.
Total supply scheduled for the week ending May 2 is expected to be $4.5 billion, down from $6.4 billion last week, according to data provided by Ipreo and The Bond Buyer.
"I think investors are looking more for some yield, but there's nothing to be found," a trader in New York said. "There's basically nothing coming in, there's no supply."
Bond sales for the first three months of 2014 totaled $62.5 billion, down from $84.4 billion for the same three months in 2013, according to The Bond Buyer data.
The low supply has been met with a strong demand for municipal bonds. Municipal funds' flows have been negative only five out of the 17 weeks of 2014, according to Lipper FMI. Fund flows for the week ending April 23 totaled $244.3 million, up from $74 million the prior week.
Janney Capital Markets described inflows to municipal market funds as "consistent if not overwhelming," in a report released on Monday.
"You've got too many people chasing the same bonds, it's very frustrating," the trader in New York said. "You're getting 15, 20 bids an item. It comes right down to supply and demand."
A second trader in New York said that people are "balking" at the prices deals are coming in at and that yield is hard to find in the secondary.
"If you are looking at the secondary, spreads are probably going to be tighter," he said.
The largest deal expected this week is the $834.5 million of competitive Pennsylvania general obligation bonds scheduled for auction Tuesday. The bonds are rated AA by Fitch Ratings.
"There's only one large deal this week, the Penn GO deal," a third trader in New York said. "You don't have a lot of long issuance this week to come in and affect the secondary."
The top deal scheduled for Monday is the competitive Wayzata Independent School District 284, Minn., $109.6 million GO issuance. It's rated AAA by Moody's Investors Service.
"I think deals this week will come in pretty aggressively priced," the first trader in New York said.
Muni bonds yields were relatively steady Monday morning, with yields on the front-end of the curve flat and bonds maturing beyond 2020 rising up to one basis point, according to Municipal Market Data's triple-A scale.
Treasuries weakened Monday morning, with the 30-yields climbing three basis points to 3.47% and the 10-year benchmark rising two basis points to 2.69%. The two-year notes were unchanged from Friday's market close at 0.45%.
