Reduced new-issue supply and anticipation of a huge influx of cash into the municipal market helped pushed the yield on one Bond Buyer index to an all-time low and sent three others to their lowest levels since March.
The average yield to maturity of the 40 bonds used to calculate the daily Municipal Bond Index dropped five basis points, to 5.77% from 5.82% last Thursday. The 5.77% was the lowest yield to maturity since The bond Buyer began calculating the 40-bond index in January 1985.
The 20-bond and 11-bond indexes of general obligation bond yields each declined four basis points, to 5.57% and 5.47%, respectively, from 5.61% and 5.51% last week. The 30-year revenue bond index slid seven basis points, to 5.79% from 5.86% last week.
The three weekly indexes have not been lower since March 4, when the 20-bond index was 5.47%, the 11-bond was 5.37% and the revenue bond was 5.69%. The March 4 yields were the lowest for the 20-bond since December 1977, the lowest for the 11-bond since March 1978, and the lowest for the revenue bond index since it began in September 1979.
Demand for new municipal bonds heated up this week, as cash-heavy bond funds snapped up a considerably lighter calendar of sales. This week's anticipated sales total roughly $3.28 billion, compared with $5.55 billion of actual sales last week.
The Bond Buyer's 30-day visible supply, a near-term indicator of what dealers will be able to offer investors, dropped nearly $2 billion during the week, to $4.13 billion yesterday from $6.11 billion last Friday. Yesterday's supply was the lowest since Feb. 18, when it was $4.05 billion.
The lack of new-issue supply prompted secondary market activity this week, with Standard & Poor's Corp.'s The Blue List, which charts dealer holdings of unsold bonds, falling as low as $1.59 billion Wednesday - the lowest level since June 8 when it was $1.53 billion.
"The market's primarily being driven by anticipation of huge July redemptions, with as much as $20 billion in actual redemptions," a market observer said.
As reported in Tuesday's The Bond Buyer, approximately $10.4 billion of bonds are expected to be called and $9.2 billion are scheduled to mature on July 1. according to MuniView, a Bond Buyer database. In addition, $20 billion of coupon payments are expected.
"The market is also getting help from President Clinton's deficit reduction plan," an analyst said. "The package is highly dependent on tax revenues, which are a drag on the economy and anti-inflationary. And recent economic data does not suggest that the Federal Reserve Board will be tightening its monetary policy anytime soon."
On Wednesday, the Commerce Department reported that gross domestic product grew an anemic 0.7% in the first quarter of 1993. The department also said that new orders for durable goods fell 1.6% in May, the third consecutive monthly decline.
The U.S. government market also posted solid gains, with the 30-year Treasury bond's yield falling seven basis points, to 6.73% from 6.80%.
The Bond Buyer's one-year note index rose four basis points in yield, to 2.57% from 2.53% a week ago.