Municipal bonds are outperforming Treasuries on Friday.
Yields for short and intermediate bonds held steady, and declined slightly on the long-end with yields for bonds maturing in 25 to 30 years dropping as much as one basis point, according to Municipal Market Data's triple-A scale. The 10-year, 30-year and the two-year Treasuries' yields rose.
"Munis are taking a breath, and no big deals are coming today," a trader in New York said. "Treasuries are what are really driving muni yields right now."
The two-year note's yields rose by four basis points to 0.46% from Thursday, and the 10-year's yields increased by two basis point to 2.6%. Yields on the 30-year rose one basis point to 3.41% from Friday morning.
"Really, Treasuries are the driver of near-term transactions," a trader in Chicago said. "Longer term, it really boils down to Treasuries."
Municipal bonds have been following Treasuries most of the week, selling off when Treasuries weakened on Monday and Tuesday and strengthening when Treasuries' yields fell on Thursday.
Many market participants are saying municipal bonds' and Treasuries' absolute levels are incredibly low, and that both will need to sell-off sometime soon.
"I do see [municipal bond] yields rising, I don't like this market," a second trader in New York said. "I don't think companies are performing as well as they are reporting, and I don't think the economy is as strong as it is reporting."
Janney Capital Markets wrote in a report released on Friday that issuance will decline next week.
"The pace of new issuance will recede next week, with about $5.5 billion scheduled so far compared to the $9.8 billion total of the current week," Janney wrote in the report.
Next week's issuance is led by a mammoth competitive Georgia general obligation deal scheduled to come on Tuesday that totals nearly $1 billion.
The deal is coming in five parts, ranging from $325.4 million to $13.8 million. The deal is not yet rated.
"The recent surge in primary market activity leads us to believe that we may be in the throes of the final push by state and local governments to raise capital before the summer," John Dillon, chief municipal bond strategist and managing director at Morgan Stanley, wrote in a report released on Friday.
Competitive issuance has remained low in recent weeks with only one competitive deal totaling over $100 million auctioned this week.
The two largest negotiated issuances scheduled to price next week are $900 million Texas Department of Transportation GO mobility fund refunding bonds expected on Wednesday, and $590 million Oregon tax anticipation notes on Tuesday.
Bank of America Merrill Lynch will price the Texas DOT refunding bonds, which earned triple-A ratings from the three major rating agencies.
The Oregon tax anticipation notes will be sold by Citigroup Global Markets and received a MIG 1 from Moody's Investors Service, SP-1-plus from Standard & Poor's and F1-plus from Fitch Ratings
