The tax-exempt market continued to climb Friday, though traders noted activity was definitely slower than earlier in the week.
"It doesn't look like there is an end in sight," a Texas trader said. "Zeros are starting to move. It's the place where people can get yield without sacrificing duration or quality. The market has moved so much it's hard to find anything with real value in it."
He added some people are in disbelief about the low levels of yields right now. "People are looking at new issue scales and scratching their heads and then seeing the follow through in the secondary and saying I guess these levels are right."
This trader added the market was taking a small breather Friday afternoon. "We've been focusing on finding things to buy," he said. "So I'd definitely say it's slower today and it's a good day to catch your breath. Next week should be slower too."
The Municipal Market Data scale has set new record low yields with each passing day this week while municipal bonds have posted gains for eighth consecutive sessions.
On Thursday, the 10-year yield dropped three basis points to a record low yield of 1.51%. The record beat the 1.54% set Wednesday and the 1.55% set Tuesday.
The 30-year MMD yield plummeted five basis points to 2.55%, also setting a record low. The 2.55% low beat the previous record of 2.60% set Wednesday and 2.64% set Tuesday.
The two-year finished steady at 0.30% for the 35th consecutive trading session.
Treasuries continued to trade steady Friday afternoon. The benchmark 10-year yield and the 30-year yield were flat at 1.58% and 2.72%, respectively. The two-year was steady at 0.24%.
Since Hurricane Sandy, municipal bonds have been on a tear, with yields falling to record lows. Investment grade municipals bonds have moved up 1.19% since the hurricane and have returned 7.74% year-to-date as measured by the S&P National AMT-Free Municipal Bond Index. Similarly, high-yield municipals have experienced demand, with a tax-exempt yield of 5.62% or a taxable equivalent yield of 8.65% as measured by the S&P Municipal Bond High Yield Index.
JR Rieger, vice president of fixed income indices at Standard & Poor's Down Jones Indices, noted high-yield municipal bonds have fallen nine basis points over the last week while high-yield corporate bonds have seen prices fall and yields rise by 25 basis points for the same time period.
"High yield municipal bonds remain attractive in relative terms to high yield corporate bonds which are yielding a taxable 6.74%," he said, adding high-yield munis have returned 16.96% year-to-date while high-yield corporates have returned only 12.21%.
In the primary market next week, $2.25 billion is expected to be priced, down from this week's revised $6.03 billion. On the negotiated calendar, $1.97 billion is expected to be issued, down from this week's revised $3.95 billion. In competitive sales, $276 million should be auctioned, down from this week's revised $2.08 billion.