A small pause in rising municipal bond yields Friday afternoon wasn’t enough to give traders conviction the rally would continue with supply expected to increase in September.
Next week, new-issue supply should rise to $5.9 billion from this week’s $1.4 billion. An uptick in volume, coupled with a small rally driven mainly by gains in Treasuries, kept traders hesitant to buy.
“There are still outflows and supply is picking up a little bit next week so that’s likely going to put pressure on the market,” a Virginia trader said. “We haven’t had that problem yet of both outflows and higher supply. And usually we see an uptick in September.”
Relative to Treasuries, munis look cheap as ratios are over 100%. But headline risk from Detroit and Puerto Rico are keeping buyers sidelined for now, this trader said.
Munis yields fell one to two basis points Friday afternoon, following Treasuries.
On Thursday, yields on the triple-A Municipal Market Data scale ended as much as three basis points higher. The 10-year and 30-year yields rose two basis points each to 3.04% and 4.51%, respectively. The two-year finished flat at 0.43% for the 36th straight session.
Yields on the Municipal Market Advisors scale also ended as much as three basis points weaker. The 10-year and 30-year yields rose two basis points each to 3.16% and 4.61%, respectively. The two-year closed unchanged at 0.55% for the 15th session.
Treasury prices continued to rise as yields fell. The two-year yield fell six basis points to 0.46% and the benchmark 10-year yield dropped eight basis points to 2.91%. The 30-year yield fell four basis points to 3.84%.