The six-day rally on the intermediate and long-ends of the curve slowed on Monday.
Yields 14-to 30-years out on the curve rose up to one basis point, and they held steady for maturities from one-to 13-years held steady, according to MMD.
"I think it's early, I think folks are just digesting what happened last week," a trader in New York said.
Last week yields on the long-end of the curve fell for six-straight days after the employment situation report was released on April 4 showing the unemployment rate remain at 6.7% for March and the nonfarm payroll number was lower than market expectations. From April 3 to market close on Friday yields for the 10-year dropped by 15 basis points to 2.36% and by 21 basis points to 3.74% for the 30-year, according to data provided by Municipal Market Advisors.
"We expect yields for intermediate and long-term bonds to fall this week," the trader in New York said. "We believe investors will see a continuation from last week and that it will push rates lower."
Another trader in New York said unfavorable global economic news will keep the municipal market strong.
"We've got issues in Europe and a slowdown in China, people are looking for a safety purchase right now," the trader said.
The second New York trader also said that this week's low issuance will cause prices to rise along the curve. Issuance is scheduled to be $2.6 billion down from $4.39 billion last week, according to data provided by Ipreo and The Bond Buyer.
"I don't think we're going to stay here forever, but with issuance being this low prices will remain high for a while," the second New York trader said. "The long-bond definitely has some wheels here and will try to rally again. Though eventually people will say they are not buying at these levels anymore."
Morgan Stanley said in a report released on Friday that they are removing their "near-term cautious" outlook where they advised investors to buy defensive 5% or higher coupon bonds maturing in four-to nine-years , and replacing it with a constructive outlook.
"Following the upward yield adjustments, shorter maturities now offer better value than just six weeks ago," the report said.
The retail sales report was released Monday morning showing that sales for March increased by 1.1%, up from February's 0.7% rebound.
"Fundamentally, the US economic recovery remains on track, but reaches no escaping velocity anytime soon," Bank of America Merrill Lynch said in a report released on Monday.
There are no deals over $100 million in both the negotiated and competitive market Monday.
"We are not focusing on any deals coming this week," the trader in New York said. "For the most part we are focusing on the secondary, on quality yield paper which is becoming harder and harder to find. There are a variety of names, but we focus on healthcare."
The other trader in New York said he was focusing on smaller competitive issuances scheduled for this week.
Treasuries strengthened from Monday morning to the afternoon, with the 30-year yields and the two-year notes falling one basis points each to 3.49% and 0.39%, respectively. The 10-year benchmark was unchanged at 2.64%.
"Ratios have been little changed during the Treasury rally in the most recent two weeks," BAML said in the report released on Monday. "As such, we remain optimistic that ratios can improve another 5% in the next few weeks. We propose neutral to lower hedge ratios as a result of our ratio view and rates view."
