Citi'​s Vikram Rai writes, "Maintain bullish view on municipal cash." He comments, "We maintain our bullish view on municipal cash owing largely to positive supply-​demand technicals1 and expect 2YR, 5YR, 10YR and 30YR municipal Treasury yield ratios to end July 2017 around 65%, 68%, 82% and 92% respectively. Thus, yield ratios for all tenors could decrease more from current levels (​and we have factored in the robust issuance calendar over the next few weeks). In fact, it is quite possible that 2YR and 5YR ratios could drop even below 65% and 68% respectively as statistical relationships tend to break down for the front end when yields are too low. We stress that it is important to maintain the distinction between cash and derivative products. Our recent recommendation to buy MCDX2 at current levels is a tactical trade idea in light of the failure of the MCDX index to follow fundamental trends; MCDX premiums have moved steadily lower despite the credit deterioration in some of underlying reference entities. A downgrade or a credit event could cause these premiums to rise fairly quickly. We are NOT recommending that investors should short the broader municipal market.... In fact, we believe that investors should continue to add duration as we expect the issuance calendar to be lighter during the latter half of the year, which could cause a minor scarcity of high grade, long duration paper."

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