NEW YORK – Tax-exempt yields appeared to follow Treasury yields lower Friday as investors rushed into the risk-off trade.

But while munis generally follow Treasuries, some traders noted muni yields could rise as traders hit a wall with near record low rates, and on an expected increase in supply in the next few weeks.

“This is bad,” a New York trader said. “Some trades are going off, but coupled with this calendar, say goodnight to munis.”

He added that muni yields can’t follow Treasury yields any lower. “People don’t care anymore. June rollover supply is coming, the 30-day visible supply jumped to $12 billion, and secondary supply is at an all-time high.”

On Friday, the trader said, participants couldn’t get a cash bid. “There is some buying, but people with the pulse of the market are giving good counters to bids.”

Munis were firmer Friday, according to the Municipal Market Data scale. Yields on the two- to five-year notes dropped as much as three basis points. Yields outside six years dropped between two and five basis points.

On Thursday, the 10-year yield fell one basis point to 1.79% while the 30-year yield dropped two basis points to 3.08%. The two-year yield closed steady at 0.33% for the seventh consecutive trading session.

Treasuries were much stronger as poor economic news fueled demand into safe-haven bonds. The benchmark 10-year yield dropped 10 basis points to 1.47%, hovering around the record low of 1.45% set in the morning. The 30-year yield plunged 11 basis points to 2.54%, setting a new record low. The two-year yield fell one basis point to 0.26%.

In the primary market next week, $9.61 billion is expected to be issued, up from this week’s revised $3.73 billion. In the negotiated market, $7.53 billion is expected to be priced, up from this week’s revised $1.96 billion. On the competitive calendar, $2.08 billion is expected to be auctioned, up from this week’s revised $1.77 billion.

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