The municipal bond continued to rally Monday afternoon, following Treasuries, as traders said the market was gearing up for primary issuance this week.
"It's feels a little firmer probably because Treasuries are firmer too," a New York trader said, adding trading was quiet ahead of new deals.
The biggest deal expected on this week's $5.77 billion calendar is $1.2 billion of Iowa Finance Authority fertilizer bonds. This trader said the deal should see broad-based support.
"It could be a tough sell right now based on the headlines from Texas just two weeks ago, but at double-B-minus and the hunger for yield right now, it wouldn't surprise me if it ends up doing better than expected," he said.
This trader added that buyers interested in lower-rated bonds may want the diversity this deal provides. "It's a different name so you figure firms who do junk bonds would go for it in droves since they don't own it."
"As crazy as it sounds, I think at this point in time I'd rather have the headline risk associated with double-B-minus fertilizer plant bonds than Puerto Rico GOs," he said.
Municipal bond scales ended as much as three basis points lower Friday, posting more gains than the market did all week.
Yields on the Municipal Market Data 5% triple-A GO scale ended as much as three basis points lower. The 10-year yield fell one basis point to 1.69% and the 30-year yield slid three basis points to 2.87%. The two-year closed steady at 0.29% for the 16th session.
Yields on the Municipal Market Advisors 5% scale also ended as much as three basis points lower. The 10-year and 30-year yields fell two basis points each to 1.75% and 3.00%, respectively. The two-year was flat at 0.32% for the 16th session.
Treasuries continued to post gains Monday afternoon. The benchmark 10-year and 30-year yields fell one basis point each to 1.66% and 2.86%, respectively. The two-year yield also slid one basis point to 0.22%.