The Bond Buyer's municipal bond indexes, still gasping from the squeeze between mutual fund redemptions and a scarcity of buyers, showed moderately higher yields for the fourth straight week.
While a solid price advance Wednesday did bring yields down from Tuesday's highs, the indexes still have risen roughly 70 basis points over the past 10 weeks and attained their highest yields in more than three years.
The 20-bond index of general obligation yields jumped 13 basis points, to 6.96% from 6.83% last Thursday, while the 11-bond GO index climbed 12 basis points, to 6.84% from 6,72% a week ago. The GO indexes are now at their highest levels since Aug. 1, 1991, when the 20-bond was 6.99% and the 11-bond was 6.84%.
The 30-year revenue bond index rose seven basis points, to 7.23% yesterday from 7.16% a week ago. The index is at its highest point since July 3, 1991, when it was 7.24%.
The average yield to maturity of the 40 bonds used in calculating the daily Municipal Bond Index gained 14 basis points on the week, to 7.19% yesterday from 7.05% last Thursday. The yield to maturity, which is calculated daily, reached a high of 7.26% Tuesday, which was the highest it has been since June 18, 1991, when it also was 7.26%.
The market's recent slump continued unabated Friday, Monday, and Tuesday, as investors in municipal bond funds continued to redeem their shares, forcing fund managers to unload their inventory into a reluctant market. The resulting fire sale pushed dollar bond prices down 1/2 to 3/4 point Friday, 1 1/4 points Monday, and 3/8 to 1/2 point.
The decline ended Wednesday, however, with a solid ran-up that pushed dollar bonds 1/2 point higher. One trader said the gains were driven primarily by arbitrageurs who had shorted the unusually rich Municipal Bond Index futures and bought cash. Prices firmed further yesterday, following the Labor Department's report that the producer price index declined 0.5% in October, well below the 0.2% gain that had been expected. U.S. government securities recovered from last Friday's disastrous market with a bit more verve this week, boosted by a successful three-year note auction, a stronger dollar, and the producer price report. The yield on the bellwether 30-year Treasury bond bounced back to finish just four basis points higher at 8.14%, up from 8.10% last Thursday.
In the short end, The Bond Buyer's one-year note index jumped 17 basis points this week, to 4.36% from 4.19% last Wednesday. That was its highest level since Dec. 4, 1991, when it wits 4.37%.