Municipal bonds rallied for a fifth straight day on Wednesday, the most this year, driving 10-year yields near record lows amid scarce supply and rising demand for the securities from mutual funds.
The yield on top-rated tax-exempt bonds maturing in 10 years fell 2.2 basis points to 1.77 percent at 3 p.m. in New York, according to a Bloomberg Valuation Index. On Jan. 19, the rate touched 1.75 percent, the lowest since Bloomberg began compiling the data in January 2009. A basis point is 0.01 percentage point.
“You have money coming in and you have investors who have to put the money to work,” Jason Hannon, a trader at New York-based Arbor Research & Trading Inc., said in a telephone interview. “Couple that with lighter-than-expected supply, and that’s going to act as a driver to keep the yields low.”
The amount of local-government debt scheduled for sale in the next 30 days dropped to $6.27 billion Wednesday, about $1 billion less than the average from the past 12 months, according to data compiled by Bloomberg.
Mutual funds that focus on U.S. municipal bonds received about $513 million in net additions in the week ended Jan. 25, according to Lipper US Fund Flows data. It was the eighth straight week of gains, the longest stretch of increases since November 2010, the data show.
Investors are poised to collect $31.6 billion this month from coupon and principal payments on municipal securities, up from about $30 billion in January, Chris Mauro, head of U.S. municipal strategy at RBC Capital Markets in New York, said by e-mail.
Municipal-bond yields fell as 10-year Treasuries snapped a five-session rally Wednesday as U.S. manufacturing expanded in January at the fastest pace since June, curbing demand for the safety of government debt. Yields rose 4 basis points to 1.84 percent at 3:44 p.m. in New York, up from an almost four-month low Tuesday, according to a Bloomberg index.
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