Municipal short-end rates continue to fall

The municipal market continued its short-end rally Tuesday with yields falling by as much as seven basis points, amid a well-functioning new-issue market that saw deals re-priced to lower yields. Amid an otherwise quiet tone that was characterized by some firmness and strong demand for a large Connecticut pricing and a steepening yield curve, there was support for the front end of the municipal market, according to traders. The front of the municipal yield curve is “astounding” and traders said dealers are uncharacteristically accepting the levels, likely due to the historically attractive ratios, he noted. “Guys are buying the front end even though yields have gone through 1%, which usually holds them up,” he explained. “But, they don’t seem to be adverse to it as they had been.” For instance, on Monday, the three-year triple-A municipal bond yielding .49% was offering 205.9% of the comparable Treasury counterpart, which yielded 0.22%, the trader noted.