The Bond Buyer's municipal bond indexes, feeling the squeeze from an illiquid market, a weak dollar, and reports of stronger economic growth, posted significantly higher yields this week.
The indexes now have risen in eight of the past nine weeks.
The 20-bond index of general obligation yields jumped 19 basis points, to 6.83% from 6.64% last Thursday, while the 11-bond GO index climbed 18 basis points, to 6.72% from 6.54% a week ago. The GO indexes are now at their highest levels of the year and last reached these levels in August 1991.
The 30-year revenue bond index rose 21 basis points, to 7.16% yesterday from 6.95% a week ago. It has not been higher since July 1991.
The avenge yield to maturity of the 40 bonds used in calculating the dally Municipal Bond Index -- most of them revenue bonds- gained 21 basis points, to 7.05% yesterday from 6.84% last Thursday. This was the highest yield to maturity for the index since August 1991.
In the short end, The Bond Buyer's one-year note index was up six basis points this week, to 4.19% from 4.13%.
A few large issues were placed in the primary market, but buyers remain scarce. The market was so poor that Goldman, Sachs & Co. twice delayed a $189.7 milhon New York State Medical Care Facilities Financing agency offering, originally slated for sale on Tuesday.
While not as onerous as previous weeks, bid-wanted lists continue to burden the secondary market, with more than $200 million in lists out for bid. The 30-day visible supply of municipal bonds yesterday totaled $3.19 billion, down $159.2 million from Wednesday.
In addition, dealer inventories remain heavy; Standard & Poor's Corp.'s Blue List drifted during the week and stood at $2.236 billion yesterday, up slightly from $2,2 billion a week ago.
Overall, the fixed-income markets continued to be battered by weakness in the dollar and further reports that the economy continues to thrive. The yield on the bellwether 30-year Treasury bond rose five basis points on the week, to 8.09% yesterday from 8.04% last Thursday.
Tax-exempts continue to underperform government securities, thanks to heavy institutional bond fund selling and a dearth of cross-over buyers.
Furthermore, bond prices are suffering from the growing sense that the Federal Reserve missed an opportunity to keep inflation in check when it took no tightening action during its last meeting in September.
The third-quarter gross domestic product report, released on Oct. 28, showed the economy expanding at a 3.4% rate in the third quarter.
While the increase was bigger than expected, market participants took heart that inflation remains under control, evidenced by the unexpectedly low 1.6% gain in the implicit price deflator in the third quarter, down from 2.9% in the previous quarter.
However, traders found little solace in this week's economic news.
On Monday, the government reported that household income surged 0.6% in September, the biggest gain in five months. Also Monday, the Purchasing Management Association of Chicago's business barometer showed a one-point increase, to 64.3% in October, with its price and employment components rising. A reading below 50% signals a slowing economy, while a level about 50% suggests expansion.
The bond market plunged on Tuesday in reaction to the release of the National Association of Purchasing Management's October index, which climbed to 59.7% from 58.2% in September.
On Wednesday, traders were briefly uplifted by reports that the index of leading U.S. economic indicators was unchanged for September, Whatever boost that news may have given was lost later that same day when the Commerce Department reported that factory order for August were revised upward to 4.7% from 4.4% and durable gods orders were also revised higher, to 0.4% from 0.1%.
Also on Wednesday, the dollar hit a new postwar low against the Japanese yen, trading at around 96.15 yen, and also lost ground against the German mark. the dollar rallied after currency traders reported that the Federal REserve intervened to support the dollar. The dollar's rebound helped lift bonds briefly, but the upward movement could not be sustained.
Yesterday, the tone remained negative as tax-exempt prices drifted in light action ahead of today's employment report.