Yields on municipal bonds are bouncing up after reaching a bottom as a result of a three-week rally, traders speculated.
The strongest start to a year since 2009 has driven bond yields down by as much as 30 basis points on some parts of the curve, and now sellers are considering making concessions to reluctant buyers, according to market participants.
"It seems like yields ran down a little bit too quickly," one trader in New York said in an interview. "Unless something else comes out that points to further weakness in the economic data, then we'll back off a few basis points the next couple of days."
Yields on bonds maturing from 2022 to 2024 were up as much as two basis points Tuesday morning, according to Municipal Market Data's AAA scale read. Bonds maturing before 2019 were steady to one basis point lower.
Market observers have attributed January's rally to a lack of new issue bonds, which has pressured buyers to compete for a limited number of bonds. Barring unforeseen policy changes at Wednesday's Federal Reserve Open Market Committee meeting, yields may return to firming over the next week as issuance remains low, muni participants said.
"Next week's calendar isn't all that daunting, issuance may pick up a little bit," the trader said. "You'd think with some of these weaker economic numbers the Fed may slow down its plan to end quantitative easing a little bit."
Volume this week could reach $4.89 billion, according to Bond Buyer and Ipreo data. Total bond sales last week came to $4.57 billion, according to Reuters.
"January so far has been shaping up to be a month that is reasonably strong, and one that I would imagine retail investors and others did not imagine back in November and December," a portfolio manager said in an interview. "This may be the kind of year that you get these surprising months and quarters."
In the negotiated market, RBC Capital Markets priced for institutions $467.9 million of Minnesota general fund bonds Tuesday. The funds will be used for the state's Minnesota Vikings football stadium.
Yields on the bonds ranged from 0.20% with a 2% coupon maturing in 2015, to 4.12% with a 5% coupon maturing in 2043. The bonds, rated AA by Standard & Poor's and Fitch Ratings, are callable at par in 2023.
In the competitive arena, Citigroup Global Markets Inc. won the bid for $237.1 million Wisconsin general obligation bonds, while Bank of America Merrill Lynch won $202.1 million of Tarrant County, Texas, water district revenue bonds.
Treasuries softened Tuesday, with the 30-year yield up two basis points to 3.70%. The 10-year yield ticked up one basis point to 2.77%, while the two-year remained steady at 0.36%.
