Municipal bond yields steadied Friday afternoon after rising earlier in the morning. Yields continued to remain low even after a week of softening in U.S. Treasuries.
"Tax-exempts outperformed this week's US Treasury market weakness, as municipals experienced relatively lethargic trading activity (attributed partially to light staffing due to the President's Day Holiday and school vacations) and minimal issuance," John Dillon, chief municipal bond strategist at Morgan Stanley Wealth Management, said in a report Friday.
Light supply has kept municipal bond yields low even as treasuries soften, market participants said. In the negotiated market, Morgan Stanley held institutional pricing Thursday for $400 million of Metropolitan Transportation Authority bonds that took retail orders on Wednesday. Yields on the MTA bonds offered Thursday fell by two to three basis points from retail pricing.
"Treasury yields have crept up most of the week and munis have held firm and that's primarily because of the lack of supply," Howard Mackey, vice chairman at Rice Financial, said in an interview. "You can see evidence of that in the MTA financing, which came at fairly strong levels, and they even improved yields on repricing."
There were just $1.89 billion of bond sales this past week, according to Thomson Reuters data. The lack of new bonds enabled issuers this week to get low yields as the biggest deals held repricings.
"We anticipate primary market activity will accelerate in March, as January and February hold the two lowest monthly averages for issuance," Dillon wrote.
Treasury yields were lower Friday morning, with the 30-year benchmark Treasury yield falling three basis points to 3.70%, while the 10-year also slid the same amount to 2.74%. The two-year lost one basis point to 0.33%.
Bond yields according to Municipal Market Data's AAA scale were mostly steady Friday afternoon, with bonds maturing from 2025 to 2026 falling one basis point.
