Municipal bond traders Thursday said the month-long rally that pushed yields down more than 30 basis points on some maturities has run into headwinds.
"I think the market has run into a little bit of a wall, we've had fairly good appreciation in basis points the last couple of months," one New York-based trader said in an interview.
Many traders expressed the sentiment that the rally the past three weeks may have been overstated, and that bonds will now begin to settle at higher yields.
"We're in a bit of a saturated period for munis. While we're getting positive technicals, the market's getting a little bit ahead of itself in terms of directionality," the trader said. "Ratios can continue to tighten, but I'm not sure absolute levels have anywhere to go at this point."
Yields on municipal bonds maturing from 20210 to 2044 were pushed up by as much as one basis point, according to Municipal Market Data's AAA scale.
"The municipal rally we've seen in the early days of the New Year may be running out of steam, with a softer market tone Wednesday, and a second day of rising yields, particularly in the 8- to 12-year part of the yield curve," Janney Capital markets said in a report Thursday.
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 Thomson Reuters.
"ICI reported a second week of modest mutual fund inflows last week (+$128 million), and anecdotal reports suggest a continuation of the positive direction when Lipper reports this week's flows later today," Janney said.
The Federal Open Market Committee Wednesday announced another $10 billion per month tapering of its bond-buying program. Market participants expect the taper to push interest rates higher.
Treasuries were softer Thursday morning, with the 10-year yield up two basis points to 2.70%. The 30-year yield jumped one basis point to 3.64%, while the two-year was unchanged at 0.37%.
