Strategists are expecting the intermediate part of the curve to be attractive for the rest of the second quarter.
"Wells Fargo Advisors (WFS) Municipal Research currently recommends a duration target of 7.25 years for tax advantaged accounts, which is slightly short of the Barclays Municipal Bond Index of 7.45 years," Dorian Jamison, municipal analyst at Wells Fargo Advisors, said in a report released on Friday.
Jamison wrote in the report this part of the curve is ideal because investors can pick up more than half of the Municipal Market Data triple-A yield curve within eight years due to the steepness of the intermediate portion of the yield curve.
"Since municipal bond buyers can pick up 80 percent of the high grade MMD curve within 15 years, it is not necessary for investors to take on additional interest rate risk by venturing out too far on the yield curve," he wrote.
Morgan Stanley's chief municipal bond strategist John Dillon is also recommending buying in the intermediate part of the curve as part of his group's longer-term strategy, Dillon said in a report released on Friday.
"We prefer 5% coupons in our focus maturity range of 4- to 9-years and acknowledge value in the 20-year range amid further yield curve flattening," Dillon wrote.
The total potential volume for this week is $3.9 billion, down from last week's $6.2 billion issuance, according to data provided by Ipreo and The Bond Buyer.
Issuance this year has been low, totaling $86.75 billion up to April 30, compared to $122.72 billion for the same period in 2013, according to data provided by Ipreo and The Bond Buyer.
Dillon acknowledged, in the Morgan Stanley report, issuance has been low, noting April's new-issue volume has declined 35% year-over-year. "We continue to look toward the higher end of our 8% to 12% decline forecast for new issue supply in 2014 and expect that year-over-year comparisons will soon moderate once last year's post-'taper' data come into play," he said in the report.
Chris Mauro, head of U.S. municipal strategy at RBC Capital Markets, warns that issuance may not improve over the next two months and that could alter projected outlooks for volume in 2014.
"The second quarter has historically been the heaviest for supply, typically accounting for 28.6% of annual issuance," he said in the report. "Therefore, we caution that while we are currently on a $280-$285 billion annual issuance pace through April, an unexpectedly light May and June calendar could significantly alter the outlook for total 2014 issuance."
There are no deals over $100 million slated to enter either the negotiated or the competitive market Monday.
Citigroup Global Markets will bring $450 million of toll highway senior revenue bonds for the Illinois State Toll Highway Authority Wednesday, the largest negotiated deal of the week. The bonds will mature serially from 2025 to 2034 with a term bond in 2039. The deal is rated Aa3 by Moody's Investors Service and AA-minus by both Standard and Poor's and Fitch Ratings.
The Delaware Transportation Authority will issue $113.3 million of revenue bonds Tuesday, the largest competitive deal of the week. The bonds are not rated.
Treasuries were mixed Monday morning, with the 10-year benchmark falling two basis points to 2.58% and the two-year notes rising one basis point to 0.42%. The 30-year yields were unchanged at 3.37% from Friday's market close.
