The muni market ended weaker Monday after early-morning gains were erased and the asset class saw yields rise after a three-day rally. U.S. Treasuries cheapened out long and equities ended up.
Muni yields started the day up to three basis points richer but were eventually cut by up to six basis points, depending on the scale.
UST yields cheapened by up to four basis points five years and out, with the largest losses on the long end.
Muni losses followed last week's midweek rally. Kevin McGuigan, director at Municipal Market Analytics, chalked up the weakness to continued pressure from Treasury rates.
"Municipals were able to claw back some losses in the latter half of last week despite little directional support from Treasuries, but [Monday's] continued push higher in long-term Treasury yields appears to have spilled over into municipals," McGuigan said.
The selloff throughout September made munis very attractive relative to Treasuries, noted Cooper Howard, director of fixed income strategy at Schwab. This signals the asset class will likely attract crossover buyers.
This week will be fairly light on economic data, Howard said, but the release of the minutes from September's Federal Reserve meeting could sway yields. The most important factor to watch will be the UST markets, Howard said.
"There are fundamental factors that suggest the run in yields is a little bit overdone, but I think the momentum is still behind higher yields," Howard said. "So, at this point, we're not suggesting investors try to get ahead of it."
