Municipal bonds rallied for the third straight day Thursday as supply remained light.
Trading activity has slowed, with no large deals scheduled for Thursday. The secondary market has also seen fewer trades than Wednesday.
"Volume is light overall. It was hard to keep up yesterday, but there's not much trading going on today," a Chicago trader said. "I'm not sure if it's because everyone is trying to cash in on the rallying or if it's because people aren't getting the bids that they want. Activity is lower today than it's been."
Municipal bond yields on the intermediate part of the curve fell as much as five basis points, while yields on bonds maturing beyond 2037 slipped as much as four basis points.
The short end of the curve was steady, according to the Municipal Market Data's triple-A scale.
"Everybody is trying to figure out when we're going to see a backup in yields," a second trader based in Chicago said. "People are frustrated with the market and are wondering when this rally is going to stop. There seems to be no sign of a back off. Munis are just following suit of the Treasury rally and the lack of supply."
Though there is a lack of supply some investors are being finicky about which parts of the curve to buy into.
"People are being selective," a third Chicago trader said. "Everyone wants high rates. Credit spreads are extra tight, which is somewhat dangerous if we get supply, which won't be for a while."
Some investors turned to the $1 billion New Jersey Turnpike Authority revenue bond deal that came earlier in the week. "The New Jersey turnpike deal was gobbled up," the third Chicago trader said. "That shows that customers don't have anywhere to put their cash so they're looking to the secondary market."
Treasuries strengthened Thursday afternoon, with 30-year yields falling five basis points to 3.32% and the 10-year benchmark slipping six basis points to 2.49%. The two-year note fell two basis points to 0.36%.
