NEW YORK – Friday looks to be capping a week of what has been nothing less than dramatic for the tax-exempt market.
Muni yields have set new record lows almost every day this week and muni bond funds saw the highest inflows in almost two years.
“Customers are buying everything in sight,” said a trader in New York. “It’s an extremely busy Friday.”
On Friday morning, munis were rallying big, according to the Municipal Market Data scale. The six-year and seven-year yields fell one basis point while the eight-year and nine-year yields dropped between one and three basis points. The ten-year yield fell between two and four basis points. Outside the 11-year, yields plummeted between three and seven basis points across the curve.
On Thursday, the two-year closed down two basis points at 0.35%. The 10-year fell three basis points to close at 1.76%, beating the previous record of 1.79% as recorded by Municipal Market Data Wednesday. The 30-year dropped four basis points to 3.29%, beating the previous record of 3.33% as recorded by MMD on Wednesday.
Since Monday, the two-year has fallen five basis points, the 10-year yield has fallen seven basis points, and the 30-year yield has dropped an astonishing 16 basis points.
Treasuries had a very big rally overnight and Friday morning. The two-year yield fell one basis point to 0.23%. The benchmark 10-year yield and the 30-year yield dropped eight basis points each to 1.85% and 2.89%, respectively.
Municipal bond mutual funds had a fantastic week. In the week ending Jan. 11, municipal bond funds saw $1.11 billion of inflows from funds that report their flows weekly, according to Lipper FMI. That’s more than double the amount seen in the week ending Jan. 4, when there were net inflows of $523 million.
It’s the sixth straight week of positive flows, and the 17th week out of the past 19. The number is the highest seen since March 2010, when inflows reached $1.13 billion.
High-yield muni funds had a large boost in inflows, and have been in the black for five of the past six weeks. Funds that report weekly saw inflows of $270 million, Lipper said. The previous week, high-yield funds reported outflows of $17.5 million.
In economic news, the U.S. international trade deficit grew to $47.8 billion in November, up from $43.3 billion in October. The 10.4% increase was the highest jump since Last May when the deficit grew 16%, the Commerce Department said.
The November deficit was higher than the median $45.0 billion deficit estimated by economists.
“Export growth to Europe continued to slow during the fourth quarter and exports to Germany were below year-ago levels in November,” wrote economists at RDQ Economics. “However, export growth to Asia, South America, OPEC countries, Canada and Mexico maintained a double-digit year-over-year pace indicating that the direct impact on the U.S. of slower growth in Europe is being largely offset by continued solid activity in other areas.”
