The municipal yield curve held steady at the end of a rough week amid a surge in supply that had dealt blows to the belly and at the long end.

Dealers in the secondary market had a difficult time mopping up what remained from the primary. Traders noticed many sellers flailing around for buyers.

Friday’s action saw much of the same, but in more subdued form. The losses were relatively modest, compared to those earlier in the week. The 10-year muni yield even fought its way back to ending the day’s session flat.

“We’ve definitely been hit good in the belly the last few days,” a trader in California said. “The long end has held up better. It’s been hard to find buyers of size, even at some of these adjusted levels. We’re still not at a comfortable enough position.”

Tax-exempt yields mostly weakened Friday, continuing the trend of much of the past week, according to the Municipal Market Data scale. The yield curve flattened further.

Yields were unchanged at one year, as well as 10- and 11-year issues. They were two to five basis points weaker for two- to nine-year issues. Beyond 11 years, they were up one or two basis points.

After nine straight sessions of firming, the 10-year muni yield rested — or, at least pared back earlier losses on the day. It held on the day at 2.55%, after surging 58 basis points since it sat at a record low on Sept. 23.

“Finally, there’s some support to the market, given the dramatic backup in rates we’ve seen this week,” a trader in North Carolina said. “Buyers are stepping into the marketplace in the 10-year space. People are looking to put money to work today. Compared to the rest of the week, it’s an active day. And there’s a little bit of stability.”

The 30-year yield ticked up one basis point to 3.71%. It has increased 27 basis points since mid-September. The two-year yield rose two basis points to 0.43%, and nine basis points on the week.

Treasury yields also weakened Friday. The benchmark 10-year Treasury yield jumped seven basis points to 2.07%. Since Sept. 22, it has soared 35 basis points.

The 30-year rose five basis points to 3.01%. It fell 60 basis points from Sept. 15 to Oct. 3, and has climbed 25 basis points since.

The two-year yield increased two basis points to 0.30%. Since Sept. 20, it has powered northward 14 basis points.

The industry anticipates a small drop in volume this week. Roughly $6.93 billion is expected for the week, after $8.23 billion this past week.

The week ending Oct. 5 saw $113 million in outflows from muni bond funds that report their flows weekly, according to Lipper FMI. In the week ending Sept. 28, there were net inflows of almost $600 million.

High-yield muni funds also saw their first outflows in five weeks. Funds that report weekly saw outflows of $70 million, Lipper said.

The previous week, high-yield funds reported inflows of $37 million.

In the shadow of the outflows, a closer look at bond funds shows that this past week fell into line with recent trends, wrote RBC Capital Markets’ Chris Mauro in a recent research note. Muni bond fund investors are still focusing on the short end.

And interest in high-yield muni funds, which had been strong all last month, seems to be wilting.

“Notably, 17 of the top 20 funds with the largest net inflows were again short, ultra-short, or intermediate funds,” Mauro wrote. “These funds accounted for almost 45% of all municipal bond net inflows.”

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.