Municipal Bonds Rally Late

If you're interested in learning more about municipal bonds and our upcoming premium service Muni Markets Daily, email us at [e-mail].

Municipal bonds stopped a month-long slump today and tried to follow in the footsteps of the Treasury market, which staged a rally in the afternoon.

Municipal securities were in no way able to follow government bonds in terms of the size of the gains, but a significant bid returned to tax-exempt securities for the first time since early February.

In terms of day-to-day total returns:

-- The high-grade, short end of the curve showed a total return of positive 0.02%, according to Municipal Market Advisors (MMA) data.

-- The high-grade, intermediate part of the curve showed a total return of positive 0.10%.

-- The high-grade, long end of the curve showed a total return of positive 0.12%.

The high-grade marketplace of bonds rated double-A or better posted minor gains today. All morning and into the early afternoon high-grades were looking very stagnant. However, the 2:15 p.m. EDT Federal Reserve announcement shook things up and immediately afterward muni bonds started to steadily improve.

Several large money managers stepped into the market looking to take advantage of tax-exempt securities that suddenly looked quite cheap when compared to the 10- or 30-year Treasury that made 45- and 25-basis points swings today. This bid along with several large banks turned the market around.

In the non-investment grade sector of non-rated bonds or single-A and lower, milder gains were posted when compared to high-grades. Again, earlier in the day this sector was taking a beating as new issues in the single-A range were selling very cheap and acting to dilute the price of much outstanding debt. But lower-rated bonds could not escape the mid-afternoon turnaround of most fixed-income today and these credits also improved slightly.