A return to normal levels of supply, strong ratios to Treasuries and other encouraging factors have the municipal market poised for a strong week.
"It's a better bid out there based on the positive technicals going on," a trader in New York said. "The expectation is that the market should rally from here."
Tax-exempts appear firmer to start the week, according to the Municipal Market Data scale read. By press time, there was no read for paper maturing within four years.
Yields from five to 10 years are flat to two basis points lower. Beyond 10 years, they have dropped one to three basis points.
The benchmark 10-year triple-A and 30-year yields finished last week down four basis points each to 1.82% and 3.12%, respectively. The two-year on Friday held at 0.32% for the 25th straight session.
Treasury yields started the week slightly stronger across the curve. The benchmark 10-year yield has slipped one basis point Monday to 1.54%. The two-year and the 30-year yields each inched downward one basis point to 0.27% and 2.65%, respectively.
The low yields have investors buying bonds through gritted teeth, the trader in New York said. "Clients are going to be forced into buying whether they like it or not," he added. "They don't like it; they'd rather buy when things are cheap. But they are flush with cash."
Muni volume is expected to approach pre-holiday levels this week, after posting anemic issuance numbers last week.
Industry estimates hold that $7.07 billion should reach the market. That compares with a feeble $105.7 million of new issuance during the holiday week.
Leading the way among negotiated deals, the New York City Transitional Finance Authority expects to come to market Tuesday with $850 million of building and revenue bonds.
Columbus, Ohio, is expected to pace long-term issues in the competitive space. It should auction $447 million of various purpose unlimited-tax bonds, also on Tuesday.
Analysts have noted that investors continue to pile money into municipal bond mutual funds. Muni bond funds reported $317 million of inflows from funds that report their flows weekly for the week ended July 4, the most recent week, according to Lipper FMI. They have seen inflows for a dozen straight weeks, and 41 of the past 44 weeks.