A sharp rally in Treasury debt prices managed to spur enough investor interest in municipal bonds this week to push yields on The Bond Buyer's indexes modestly lower.
The revenue bond index and the average yield to maturity of the 40 bonds in the Bond Buyer Municipal Bond Index both hit record lows for the second straight week. The revenue bond index, which was introduced September 1979, fell five basis points, to 5.56% from 5.61% last Thursday. The average yield to maturity, which began in January 1985, inched down one basis point, to 5.61% from 5.62%.
The Municipal Bond Index itself reached a record high of 104 02/32, an increase of 5/32 from a week ago.
The yields on the 20-bond and 11-bond indexes of general obligation bonds each fell five basis points, to 5.35% and 5.26%, respectively, from 5.40% and 5.31% a week ago.
The 20-bond index has not been that low since March 14, 1974, when it was 5.32%. The 11-bond index has not been lower since Dec. 15, 1977, when it was 5.27%.
U.S. Treasury debt prices continued the rally that began last week, with the yield on the bellwether 30-year bond dropping 11 basis points, to a record low 6.09% from 6.20% last Thursday.
The tonic effect that Treasuries had on municipals was diluted somewhat by a leaden market tone that kept secondary trading virtually nonexistent.
"Municipals haven't been doing all that much," a market analyst said. "They [the indexes] were just pulled lower with a sharp Treasury rally. They've been grossly underperforming Treasuries."
"Mutual funds have been starting to show sluggishness this week in deposit flow," a market player said. "It's been generally positive this month, but the short and long funds have been down this week. However, intermediates have shown a slight gain."
"The money chasing bonds seem to be a tad lighter," he said.
Forward supply continues to remain lighter than in previous months. The Bond Buyer's 30-day visible supply was $3.56 billion yesterday, off $616 million from Wednesday's $4.18 billion, and down $2.48 billion from last Friday's $6.05 billion. This measure of future supply has not been this low since Feb. 10, 1993, when it stood at $3.28 billion.
Standard & Poor's The Blue List edged higher to $1.8 billion from $1.79 billion. The measure of dealer inventory, which has risen in eight of the past nine business days, is now at the highest level since Aug. 5, when it was $1.86 billion.
So far through August, the 30-day visible supply has averaged $5.39 billion, compared with an average of $6.44 billion for the January-July period. The Blue List, however, has averaged $1.62 billion this month, up from an average of $1.5 billion in the previous seven months.
Short-term yields were little changed this week as the one-year note rose one basis point, to 2.83% from 2.82% a week ago.
