The municipal bond market opened Friday outperforming Treasuries as a lack of new bonds continued to hold yields at low levels.
Yields on municipal bonds were down by as much as three basis points on maturities two to three years out, while those with later maturities were steady to one basis point lower. The benchmark 10-year Treasury yield gained three basis points, while the 30-year climbed two basis points.
Prior to Friday, Treasuries spent the week rallying in tandem with municipal bonds.
"Until the supply scenario changes we don't really see any way the market weakens from here," Dan Heckman, fixed income strategist at US Bank, said in an interview. "People forget that the muni market moves more on supply-demand than other capital markets."
New bond issuance this week came to just $2.49 billion, compared with an expected $2.76 billion originally expected, according to Thomson Reuters. Two of the week's largest deals, $270 million of California Inland Valley Successor Agency bonds, and $193 million of Montclair State University bonds, were delayed.
Issuance next week could reach $5.28 billion, according to data from Ipreo and The Bond Buyer.
"There's a pickup in supply coming but we don't think it's to the point where it's going to disrupt the market," Heckman said. "I think you'll see it get bought pretty aggressively. I think we'll have to see several weeks in the five-billion plus range of issuance to change the market. Outside of a few weeks here and there I think supply is going to be a problem for buyers."
