Muni Yields Head for Month’s First Weekly Drop as Supply Slows

Yields in the $3.7 trillion municipal market are headed for the first weekly drop this month as Treasuries (USGG10YR) rallied and borrowing is expected to slow next week.

Interest rates for benchmark 10-year munis have fallen about 0.03 percentage point this week to 2.39 percent, data compiled by Bloomberg show. That would be the first decline since May 30. States and cities have scheduled about $3.8 billion of bond sales during the next 30 days, the least since Feb. 18, according to Bloomberg data.

Benchmark 10-year U.S. Treasuries fell about 0.08 percentage point to 2.53 percent this week, headed for the biggest drop since May 16. Issuance is set to decline during next week’s holiday-shortened schedule with about $3.2 billion of sales, down from $8.7 billion this week, Bloomberg data show.

“Muni yields have fallen following the lead of the Treasury market and perhaps expecting lower supply in the upcoming weeks,” said David Manges, muni trading manager at BNY Mellon Capital Markets LLC in Pittsburgh.

Next week’s July 4 Independence Day holiday means supply may be much lower, he said.

The projected slowdown overlaps with a pickup in demand as individual investors added about $234 million to muni mutual funds this past week, Lipper US Fund Flows data show. That’s up from $148 million the prior week.

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