The tax-exempt market continues to gain Wednesday as demand outweighs supply, pushing muni yields to fresh lows.

Traders said they expect rates to stay relatively low through the summer while reinvestment money continues to flow back into buyers' hands.

"Through August rates will stay low because of supply and demand," a Los Angeles trader said. "Then there will be a lot of volatility through the fall from the presidential election. And that volatility will be good for bonds and keep Treasury, and accordingly muni, rates low."

He added a big jump in yields is generally not expected to happen anytime soon given that most of the supply is coming from refinancings. "The volume is coming from refinancing. People are still afraid to issue new money."

Munis continued to gain Wednesday afternoon, according to the Municipal Market Data scale. Yields inside five years were steady while yields outside six years fell as much as two basis points.

On Tuesday, the two-year closed at 0.31% for the seventh consecutive trading session. The 10-year yield plunged three basis points to 1.62%, breaking the previous record low of 1.65% set Monday. The 30-year yield fell one basis point to set a record low of 2.80%, breaking the previous record of 2.81% set Monday.

Tuesday marked the 22nd consecutive trading session where munis traded steady or firmer. Since the most recent rally began on June 22, yields on the 10-year have fallen 24 basis points while the 30-year yield has plunged 36 basis points.

Treasuries were steady from yesterday's levels as they gained this morning, and then pared those gains in afternoon trading. The benchmark 10-year yield and the 30-year yield were steady at 1.41% and 2.47%, respectively. The two-year and five-year yields each rose one basis point to 0.24% and 0.57%, respectively.

In the primary market, Barclays Capital priced for retail $900 million of University of California Regents limited project revenue bonds in tax-exempt and taxable series. The bonds are rated Aa2 by Moody's Investors Service, AA-minus by Standard & Poor's and AA by Fitch Ratings.

The first series included $800 million of non-alternative minimum tax tax-exempt bonds and the second series contained $100 million of taxable paper. Prices were not yet available.

Citi priced $199 million of Harris County, Texas, toll road senior lien revenue refunding bonds, rated Aa3 by Moody's and AA-minus by Standard & Poor's. Pricing details were not available by press time.

In the competitive market, Bank of America Merrill Lynch won the bid for $298.4 million of Florida State Board of Education full faith and credit public education capital outlay refunding bonds, rated Aa1 by Moody's and AAA by Standard & Poor's and Fitch.

Yields ranged from 0.40% with a 5% coupon in 2014 to 3.25% with a 3.125% coupon in 2033. The bonds are callable at par in 2022.

Subscribe Now

Independent and authoritative analysis and perspective for the bond buying industry.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.