Municipal bond yields, which softened this week after a rally in the beginning of January, began to firm Thursday as new deals were well-received in the primary market.
Concern that municipal bond mutual fund outflows could spike this week gave market participants pause, even as a government report on inflation lent credibility to the belief that the Federal Reserve's tapering program won't be accelerated.
"Inflation data has been benign and from my perspective we'll be looking at outflows today," a Florida-based trader said in an interview. "I think the market expects we're closer to unchanged so if it's a higher number, the market will take that a little negatively."
The trader pointed out that outflows were visible on Monday and Tuesday of this week. Municipal bond mutual funds recorded $19 million of outflows in the week ended Jan. 8, the smallest amount since May 2013. Weekly data from Lipper FMI is expected Thursday afternoon.
"We got through the primary market pretty well this week and the CPI was right as anticipated so the market is up a little bit," one trader in New York said in an interview. "We're seeing some trades, steady for the first few years with a few basis points lower from 2015 and out."
Yields on the Municipal Market Data triple-A scale were steady from five years in, with as much as a two basis point decline on bonds maturing further out.
Treasury yields strengthened Thursday morning, with the benchmark 10-year yield down three basis points to 2.85% and the 30-year yield down four basis points to 3.78%. The two-year yield remained unchanged at 0.39%.
Potential long-term volume is expected to pick up this week, to an estimated $4.88 billion, including $775 million of New York City Transitional Finance Authority bonds. The deal, led by JP Morgan Securities LLC, held two days of retail pricing beginning Tuesday. Institutional pricing for the bonds was held Thursday.
