Municipal scales strengthened on Tuesday morning as investors gave up hope that yield may be on the near-term horizon, traders agreed.
The tightening was most dramatic in the long end of the curve, where yields on bonds maturing between 2023 and 2044 fell seven to 11 basis points, according to the latest figures available Tuesday morning on Municipal Market Data's triple-A 5% scale provided by TM3. Yields on bonds maturing between 2020 and 2022 fell three to eight basis points while the front of the curve saw the least movement, with yields falling up to four basis points, according the Municipal Market Data's triple-A 5% scale provided by TM3.
"It has a lot to do with where we are in the calendar," said a Midwest-based trader. "We're halfway through October and majority of the market thinks we're going to be range bound or even tighter for at least the rest of the year."
Also pumping strength into municipals was the continued firming of the Treasury market, traders agreed. Since Friday's close, Treasury yields have tightened across the curve. Yields on the two-year fell six basis points to 0.39%, while yields on the 10-year dropped eight basis points to 2.23% compared to Friday's market close. The 30-year tightened five basis points to 2.98%.
Traders suspected the strength was two-pronged from the long holiday weekend: Federal Reserve Vice Chairman Stanley Fischer's speculation the central bank may be pushing back the timing for raising interest rates, and negative rounds of International Monetary Fund meetings in Washington.
The opening of the shortened holiday week has been slow, with just the retail order period for the roughly $1 billion Dormitory Authority of the State of New York. The two-part deal offers $963.5 million tax-exempt serial and term bonds in Series 2014A and $36.5 million of federally taxable bonds serial bonds in its Series 2014B tranches.
