Traders were attempting to unload bonds in the belly of the curve as the market strengthened on Friday.
Yields fell as much as one basis point for bonds maturing in three to seven years and for 24-year maturities, , according to Municipal Market Data. They slipped by as many as two basis points for bonds maturing in 25 years, from one to three basis points for bonds maturing in 26 years, and from two to four basis points for bonds maturing from 27 to 30 years
"Twenty out people are trying to unload," a trader in the midwest said. "The belly of the curve is rich now, it's time to sell."
Munis have been rallying for most of the last two weeks, with yields dropping for eight days straight starting on July 15 until Wednesday. During that time the 10-year dropped by 15 basis points to 2.19%, the 30-year by 10 basis points to 3.40%, and the two-year declined by one basis point to 0.31%, according to Municipal Market Advisors' data.
Yields edged higher on Thursday on the long end with the 30-year rising by one basis point to 3.41%, according to MMA.
"That's right, [selling in the belly of the curve] is a good strategy," a trader in Chicago said. "There has been some congestion in part of curve. [Earlier in the year] people shortened their duration to reduce risk, so they moved in. People in front end moved out to get some yield. [The belly is] a good area to be selling if can get a good bid."
A second trader in Chicago said that the "only obvious answer" for the municipal bond rally is geopolitical risk.
U.S. defense and diplomatic official announced on Thursday that Russia is firing artillery across its border to Ukrainian military positions, and tension in the Gaza strip has continued throughout the week.
"The U.S is kind of increasing the tone of its rhetoric against Russia, its tip-toeing towards being more and more serious," the second trader in Chicago said.
After a relatively healthy week of issuance totaling roughly $6 billion, the primary market will cool off, with no competitive deals scheduled to close Friday, according to data provided by TM3, and weekly issuance forecast to slip to $4.2 billion next week, according to Ipreo and The Bond Buyer.
Municipal funds reported their highest inflows in 11 weeks for the week ending July 23, suggesting demand may outpace supply.
Funds that report weekly said inflows surged fourfold to $686.2 million, from $157.8 million the week before, according to Lipper FMI.
High-yield muni bond funds reported inflows of $307.7 million, compared with outflows of $59.5 million the previous week.
In the negotiated market, two small deals are scheduled for Friday. A $47.8 general obligation deal issued by West Contra Costa, California will price tomorrow, led by Piper Jaffray. The deal is unrated. Another $52.315 negotiated deal is also scheduled to close tomorrow. Led by Southwest Securities, Copell, Texas will issue school building bonds into the market on Friday as well. This deal is rated AA+ by Standard & Poor's.
The week of July 28th promises to be light in the primary as well, with only one deal over $100 million scheduled to close.
The city of Suffolk, Virginia, plans to sell $124.745 million of GOs in the competitive market on Wednesday of next week. The deal is serialized, with maturities ranging from 2015 to 2042. Standard and Poors has the deal rated AAA, while Fitch rated it AA+. Moody's rated the deal Aa1.
Use of proceeds will go toward various capital improvement projects, as well as retire some of the issuer's outstanding debt. The issuance will raise the city's debt load to $361.4 million.
The largest deal in the negotiated market schedule to price next week is a $744.29 million issuance from the California State University Trustees. The revenue bonds will be lead by Barclays Capital and does not have ratings or a definitive date to close yet, according to data provided by TM3.
The Illinois Sports Facilities Authority also plans to tap the negotiated market with a $285 million sports facility deal lead by Barclays Capital. The deal is rated A by Standard & Poor's. San Antonio will also issue bonds into the negotiated market. The Texas city plans to issue $ 236.95 million general improvement and refunding bonds lead by Piper Jaffray. This deal is rated AAA by Fitch.
Municipal funds haven't reported inflows this high since the week ending May 7, when they totaled $943.2 million.
