NEW YORK - The municipal bond market coughed up some of the previous day’s gains on Friday afternoon as impending supply continued to make it tough to sell bonds.
The municipal market strengthened five basis points Thursday in delayed response to the Treasury rally stemming from the Federal Reserve’s quantitative easing program.
Municipal traders Friday said the market appears to be giving some of those gains back as concerns about supply resurface.
State and local governments are scheduled to sell $10.2 billion of debt next week, according to Bond Buyer and Ipreo data. Many traders have reservations about the market’s ability to absorb a big supply of new paper.
“Everybody started looking at inventories and balances,” said a trader on the West Coast. “There’s a little bit of an overhang from deals that came this week. …It’s a pretty hefty calendar. I think there’s a feeling out there that with the potential that BABs may not get extended, that there’ll be an awful lot of supply coming.”
This supply is coming just as retail demand for bonds is receding. According to Lipper FMI, municipal bond mutual funds that report their figures weekly posted a net inflow of just $192,000 last week – the lightest sum since the end of June.
“There’s a lot of people who wouldn’t mind selling bonds,” said a trader in New York.
“I’m one of them. … You got tax-exempts kind of stagnant.”
