Municipal bond yields continued to shed basis points Friday morning after seeing losses earlier in the week.
Market participants throughout the week noted signs of a stagnant U.S. economy, indicating that the Federal Reserve will not accelerate its tapering program. Some even suggested that a future pause in the program could be possible if the economy remains sluggish.
"Rising rate fears have receded as data, such as last week's employment report, continue to signal only moderate economic strength and minimal inflationary pressure," Janney Capital Markets said in a report Friday. "Another sign of changing investor sentiment is seen in fund flows."
Lipper FMI reported that municipal bond mutual funds reporting flows weekly had $103 million of inflows in the week ended Jan. 15, marking the end of 33 continuous weeks of outflows.
"The tone continues to improve as tax frees outperformed Treasuries, particularly on the long end of the curve," Janney said. "The 30-year benchmark AAA tax free yield dropped 6 basis points to 3.93%, equal to 104.2% of the 3.77% 30-year Treasury yield."
Yields on the Municipal Market Data triple-A scale were down as much as three basis points on bonds with maturities beyond 2030. Those in the front and intermediate parts of the curve were down by as much as one to two basis points, respectively.
Treasury yields were mixed Friday morning, with the two-year yield down one basis point to 0.39%, while the ten-year remained steady at 2.84%. Yield on the 30-year treasury jumped one basis point to 3.78%.
