With municipal bond trading slow Wednesday afternoon, the bond market headed into a third day of below-average activity.
Trading volume in the muni market picked up to 7% below average by the afternoon, after starting Wednesday at 21% below the average at 10:15 a.m., according to data from Bloomberg. Volume this week is the lowest since the beginning of the year, according to Janney Capital Market's Alan Schankel.
"We're seeing the third day of maybe below average volume, not a lot below average but low," "Monday was the slowest Monday for the year and Tuesday was the slowest Tuesday," Schankel said in an interview."
Potential issuance this week is just $2.76 billion, led by $270 million of California's Inland Valley Development Agency bonds, to be priced by Barclays Capital Inc. on Thursday.
"Low supply can be a double edged sword," Schankel said. "If you have low supply you drive down yields. Without new issues there are no robust price discoveries, so you are not getting the prices you would expect."
The California Development Agency bonds will likely be closely watched by investors later in the week, Schankel said. The sale marks the first time the agency has come to market since being the previous incarnation was disbanded in February 2012.
"It's the first large new issue of this kind, so it should be interesting," Schankel said.
Muni bond yields were also aided by Treasuries Wednesday as government paper mostly firmed. Yields on the 30-year benchmark Treasury yield fell two basis points to 3.65%, and the 10-year slid two basis points to 2.69%. The two-year yield was up one basis points at 0.34%.
Yields according to Municipal Market Data were as much as two basis points lower Wednesday afternoon on bonds maturing from 2018 to 2044. Shorter bonds were steady.
