Municipal bonds in the intermediate and long parts of the curve continued to rally on Thursday morning, as their yields declined for the third straight day.
Yields for six- to 20-year maturities fell one to three basis points, according to Municipal Market Data's triple-A scale.
"Everyone keeps wondering how much more room this market has to run," a trader in Pennsylvania said. "They will say it doesn't have much more room to go, and then another week goes by and yields continue to fall."
Municipal Market Data reported that yields for bonds maturing in five years or less are currently "under review."
Munis have been selling off throughout the month of May, particularly in the intermediate and long parts of the curve. Yields for 30-year maturities have fallen by 15 basis points to 3.46% since May 1, according to Municipal Market Advisors' data. The 10-year has dropped nine basis points to 2.23% and the two-year has declined three basis points to 0.35% in the month.
"Demand for munis continues to outpace supply and the result is the muni market is reflecting strength from the five year maturity range on out," J.R. Rieger, vice president of fixed income indices at S&P Dow Jones Indices, said in a report released Friday.
John Dillon, managing director at Morgan Stanley Wealth Management, said in an interview that Morgan Stanley expects further curve flattening. In this flattening environment he recommends investors stick to the short and long parts of the curve.
"Those who have been keeping their portfolios relatively short can go out to the eight- to nine-year range," he said. "For those who want to go out further, there is value around 20 years."
Treasuries yield also declined on Thursday with the two-year note falling by two basis points to 0.36%, the 10-year by seven basis points to 2.48%, and the 30-year by six basis points to 3.37%.
