(Bloomberg) -- Municipal bonds are staging a broad advance, pushing yields down the most in seven weeks as investors abandon stocks for fixed-income assets on concern the Federal Reserve is waiting too long to cut rates.
Yields on top-rated municipal benchmark bonds fell as much as seven basis points across the curve on Thursday, according to data compiled by Bloomberg. Thirty-year bond yields dropped seven basis points to 3.58% as of Thursday afternoon, heading for the biggest daily decline since May 3, while those on 10-year securities also posted a six basis point drop to 2.7%, the data show.
Fed Chair Jerome Powell indicated Wednesday that central bank officials are on track to reduce rates in September unless inflation progress stalls. The July employment report due Friday likely will fuel speculation on rate cuts.
“The rally has definitely been triggered by potential Fed action and economic statistics supporting the notion that the Fed can start to lower rates,” said Daniel Solender, portfolio manager at Lord Abbett & Co. In addition, “increasing demand from mutual funds, sustained strong demand from separately managed accounts and a good amount of August 1st bond coupon payments that create cash to reinvest” helped spur the rally, he said.
Municipals rose in sympathy with Treasuries - with 10-year yields falling below 4% for the first time since February on Thursday after a manufacturing gauge and jobless claims data bolstered evidence that the US labor market is cooling.
“There is a lot of money on the sidelines in money market funds and Treasury bills, that is starting to be moved to longer term bonds too,” Solender said.
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