The municipal market backed into record-level yields after a light trading session Friday.

Though shackled with sub-basement-level yields, the market stands primed for the large increase in new issuance expected this week. And there is no fear of its ability to absorb the uptick in volume, a Texas trader said.

“Even though supply is building, the block sizes seem to be getting taken care of,” he said. “The market would welcome some supply to get pricing clarity.”

Tax-exempt yields mostly fell in the day’s session, according to the Municipal Market Data scale. Yields were flat for maturities out to six years. Those beyond 2017 decreased one or two basis points.

The benchmark 10-year yield Friday once again reached a record low, as measured by MMD. It ticked down one basis point on the day to 2.07%. It fell 10 basis points on the week.

The 30-year yield also inched down a basis point to 3.66%, its lowest level in at least three decades. For the week, it has dropped 12 basis points.

The two-year yield held fast at 0.30% for a 22nd consecutive session, hovering at its lowest level in more than 40 years.

Treasury yields, after opening somewhat weaker, rallied throughout Friday. The 10-year benchmark yield fell six basis points to its low for the week, 1.92%, lingering around levels it hasn’t seen in roughly 50 years. It has dropped eight basis points on the week.

The 30-year yield also fell six basis points on the day and for the week to 3.25%. The two-year yield slipped two basis points to 0.18%. For the week, it dropped three basis points.

With the hyper-low yields, many investors are sticking to the default trade: when there’s no value to attract investors out at the long end, they look to the short end and buy high-grades, according to a trader in New York.

“If you have money to put to work, and you don’t see any value and the curve is the way it is, and there aren’t a lot of alternatives, it’s just pushing you short,” he said. “You’re not getting paid on the long end.”

Volume in the primary appears to be creeping up slowly from the scraps with which the market had to contend over the past two weeks. New issuance for this week is expected to be $4.65 billion, not including $5.4 billion of California revenue anticipation notes. Estimates for last week’s volume were revised downward to $1.95 billion.

In another positive sign, following six consecutive weeks of outflows, municipal bond mutual funds finally saw inflows. The week ending Sept. 7 saw $565 million in inflows from muni bond funds that report their flows weekly, according to Lipper FMI.

The deposits bucked a recent trend six weeks in the making. In the week ended Aug. 31, muni bond funds saw net outflows of $282 million.

The equities markets struggled all day on the news from Europe. The major indexes fell at least 2.42%. The Dow Jones Industrial Average ended down 303 points on the day.

Subscribe Now

Independent and authoritative analysis and perspective for the bond buying industry.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.