Yields drop for sixth straight week as firm tone marks end of shaky year.

The municipal market ended a volatile year with a firm tone yesterday as modest declines in the The Bond Buyer's weekly indexes reflected the sixth consecutive week of decreases in bond yields.

The 20-bond index of general obligation yields dropped three basis points, to 6.71% yesterday from 6.74% last Thursday. The 11-bond GO index was also down three basis points, to 6.62% from 6.65% a week ago.

The 30-year revenue bond index slipped two basis points, to 6.97% yesterday from 6.99% a week ago.

Yesterday, the weekly indexes reached their lowest levels since Oct. 27, when the 20-bond index was 6.64%, the 11-bond index was 6.54%, and the revenue index was 6.95%.

The average yield to maturity of the 40 bonds used in calculating the daily Municipal Bond Index dropped three basis points on the week, to 6.91% yesterday from 6.94% last Thursday.

The municipal market kept a firm tone this week as traders focused on wrapping up year-end retail and swap business.

"The market remained firm as traders look ahead to the primary calendar over the next couple of weeks," a bond market analyst said. "They're also looking forward to about $22 billion in reinvestment next month. It's been expected that tax-loss selling would cease by year-end."

"There's still business to be done, but there's no Street business and all we're getting is year-end stuff," a trader said. "Nobody's going to take on a position now, I can tell you that."

The market shrugged off yesterday's report that the index of leading economic indicators rose 0.3% in November, although analysts had expected a gain of only 0.1%. Market players said the index only confirmed the strength of the economy and offered no new information.

"The index is stronger," another trader said, "but I think people are more worried about growing uncertainty. People are saying the Fed is on a tightrope now as far as another tightening goes.

Christmas sales were slower than they expected, but that doesn't go along with the indications of strength."

Whatever activity there was yesterday stayed in a "range limited to the upside because of the disturbing drop in the dollar on foreign exchange markets," the analyst said.

"Anyone who is at work is watching the dollar-peso thing," another player said. But he noted that "we're in a holiday mode, people are apathetic, and we're off a little."

As of yesterday afternoon, bond prices were "unchanged with some bonds drifting lower in apathetic trading," a market player said.

This year, the 20-bond index posted a high of 7.06% on Nov. 17 and a low of 5.25% on Feb. 3., a difference of 181 basis points. There hasn't been that much of a spread between the high and low since 1987, when the high was 9.17% and the low was 6.54%, a difference of 263 basis points.

The Bond Buyer's one-year note index declined four basis points to 4.95% on Wednesday, from the 1994 high of 4.99% a week earlier.

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