Photographer: Michael Nagle/Bloomberg

Municipal Bonds Seek a Floor After Biggest Loss Since Trump Win

  • Ten-year yield highest since March as equity slump intensifies
  • Steady Treasuries seen supportive, lower prices to draw buyers

U.S. state and local government bond losses extended after the worst weekly decline in 15 months, with yields moving higher after the equity selloff accelerated.

The benchmark 10-year yield rose 1 basis point to 2.48 percent, while the 30-year yield stuck at 3.04 percent, according to Bloomberg index data.

Muni bonds plunged last week as Treasuries slumped amid speculation that the Fed may raise rates more aggressively to head off inflation.

The municipal market is at the mercy of Treasuries, said Pat Luby, municipal strategist at CreditSights. "If it looks like rates will back up, without lots of credit risk, I think you’ll see investors dip their toes back in," Luby said.

Treasuries rallied as the drop in stocks and spike in VIX sent a wave of flight-to-quality flows into fixed-income. Traders signaled that the abrupt pullback in risk assets may slow the pace of Fed rate hikes.

January’s muni bond selloff will attract investors, especially retail, according to Greg Kaplan, director of fixed income for City National Rochdale. However, he cautioned on the impact from equities, which plunged Monday.

"Stock market volatility is definitely something to watch as it could affect all markets," Kaplan said.

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