Retail investors have been trying to unload some of their more expensive municipal bonds during Monday's session, but they haven't been able to sell enough to move levels as the day's session crosses midday.
Odd-lot sell orders have surfaced largely in response to how tax-exempt paper outperformed Treasuries last week, a trader in Chicago said.
"It's a lot of retail and [separately managed account]-stuff that's out for the bid right now, a lot of Cal paper, just odd lots," he said. "With the back-up in Treasuries, and with munis outperforming, guys are trying to sell some of their stuff that's rich to Treasuries right now."
New muni bond issuance is expected to be insignificant for the week, as the New Year's holiday should keep market participants away much as the Christmas holiday did the previous week. Less than $1 million of competitive offerings are scheduled for auction.
On the demand side, muni bond mutual funds last week recorded a 31st straight week of outflows, according to Lipper FMI numbers. Weekly reporting funds recorded outflows of $1.49 billion for the week of Dec. 25, against outflows of $1.71 billion one week earlier.
Traders anticipated a response to the rise in Treasuries on Christmas Eve and thereafter by investors, a trader in New York said. But the reaction was expected subsequent to the end of the holidays.
"When people start coming in next week, if levels hold at this point munis versus Treasuries, munis should be under some type of weakness pressure at that point," he said. "But on the flip side, there isn't going to be a lot of supply, which could hold things in a little further. It depends on how far Treasury rates stay wider than where they were last week, when things were functioning a little more normally."
Yields on the Municipal Market Data triple-A scale are steady through 21 years. After that, they are up to one basis point higher.
The triple-A, tax-exempt 10-year closed Friday's session up two basis points to 2.77%. The 30-year ticked up one basis point to 4.20%. The two-year yield was steady at 0.33% for a 30th consecutive session.
Yields on the Municipal Market Advisors benchmark triple-A scale on Friday ticked up one basis point for some maturities between eight and 18 years on the curve. The 10-year remained unchanged at 2.78%. The 30-year slipped one basis point to 4.41%. The two-year held at 0.36%.
Treasury yields have strengthened along the yield curve. The benchmark 10-year yield has ticked down one basis point to 2.98%.
The 30-year yield has fallen three basis points to at 3.90%. The two-year has steadied at 0.40.