Municipals extend rally to open week
2 min read
Municipals opened firmer Monday as the
As of noon, MMD yields were bumped up to three to five basis points inside of 10 years and five to seven basis points outside of 10 years.
The ICE AAA yield curve was bumped two to five basis points across the curve, while Bloomberg BVAL was bumped four to seven basis points.
The market strength is a carryover from Friday, when munis rally two to 12 basis points after a weaker-than-expected jobs report solidified expectations of a September rate cut. This was the largest single-day rally since April.
“This is the continuation of what we are seeing,” as the market is actively repositioning where it needs to go, said Alice Cheng, director of municipal credit and investor strategy at Janney.
“With a disappointing jobs report on Friday, investors have fully priced in a 25-basis-point cut later this month with the possibility of two additional rate cuts this year,” said Jason Wong, vice president of municipals at AmeriVet Securities.
More economic data is released this week and all eyes will be on these reports, Cheng said.
Inflation data and retail sales later this week will give market participants an idea of the size of this month’s rate cut and how many will follow in 2025, Wong said.
In a way, the market was looking for an excuse to rally and rose to the occasion on Friday, said Matt Smith, founder and CEO of Spline Data, as relative value has been particularly cheap for a long time, especially on the long end.
Not many deals come to market on Fridays and most investors are focused on the secondary market, Smith said.
“When you have a big rally, everyone tries to pile in, and there’s no other place for that liquidity to go,” he said. “People were probably having trouble buying in previous days too, as the market was rallying, so that need to buy/deploy cash just kind of builds up throughout the week.”
Market participants believed the market would rally at some point in the second half, but Mikhail Foux, managing director and head of municipal research and strategy at Barclays, pegged it to happen later in the year.
The rally, though, was always going to be a function of what rates would do given the focus on the Federal Reserve and what it will do over the next several weeks, he said.
But even before the jobs report, the market was performing well, Foux noted.
Along with rates are and what the Fed will do, other factors, like “strengthening” fund flows and “not overwhelming supply,” contributed to why the market is performing so well right now, he said.
