With high yields attracting investors, California bonds traded stronger Monday amid an overall weaker tone in the general market.
Trader said Friday that spreads on tax-exempt California paper tightened, and the trend continued into Monday. “High-grade paper is trading tighter in California,” a Los Angeles trader said. “There is yield attraction in California. There was a small window when California general obligations 5% coupons traded at par. Now they are through that. But it’s at 4.80% instead of 3.80%. So absolutely yield levels are pulling people back in.”
Meanwhile continued outflows from muni bond funds – last week had $2.1 billion in withdrawals from funds that report weekly – are causing some forced selling in the general market. “There was forced selling from bond redemptions so it seems like the Municipal Market Data scale is out in front of itself,” the trader said. “It does look like munis are oversold.”
Friday, yields on the Municipal Market Data scale ended unchanged. The 10-year and 30-year yields closed flat at 2.71% and 4.22%, respectively. The two-year finished flat at 0.43% for the 13th consecutive session.
Yields on the Municipal Market Advisors scale ended as much as one basis point lower. The 10-year and 30-year yields were flat at 2.92% and 4.32%, respectively. The two-year was unchanged at 0.55% for the second session.
Treasuries continued to weaken Monday afternoon. The benchmark 10-year yield increased four basis points to 2.65% and the 30-year yield rose five basis points to 3.74%. The two-year yield rose one basis point to 0.32%.