Relief from the heavy burden of supply and greater confidence about a Clinton presidency helped end a month-long rise in municipal bond yields, as The Bond Buyer's indexes moved lower this week.
The 20-bond and 11 -bond indexes of general obligation yields both fell 11 basis points, to 6.51% and 6.42%, respectively, from 6.62% and 6.53%.
The 30-year revenue bond index was also down 11 basis points, to 6.70% from 6.81% last week.
The Bond Buyer's daily Municipal Bond Index's average yield to maturity declined 15 basis points, to 6.55% from 6.70%.
A slowdown in supply was the primary technical reason for the municipal market's price rebound. Although The Bond Buyer's 30-day visible supply of upcoming issues remains relatively high - between $5.71 billion and $6.36 billion this week - it has declined significantly from the $7.76 billion daily average for October.
"Supply has turned around dramatically." a market analyst said. "Before, we not only had an ample calendar of new issues, but sizable mutual fund selling before Oct. 31. Also, the market had been pricing to a higher rate in expectations of a Clinton win."
Since then, the analyst explained, new-issue supply has declined, the funds have returned to the market as buyers, and traders and analysts now believe the Clinton administration will raise marginal tax rates for wealthier individuals, which would give tax-exempt municipal bonds an additional edge.
"With everything factored in," the analyst said, "some measures have the market 15 to 20 basis points stronger."
Dealers were able to clean out some of their inventory this week. Standard & Poor Corp.'s The Blue List, which charts inventories of unsold bonds, fell to $1.32 billion yesterday, down $510 million from last Friday's $1.83 billion and the smallest total since Oct. 13, when it was $1.26 billion.
Fundamentals also helped strengthen the market this week. The Federal Reserve Board's 'beige book" report said the nation remains stuck in a weak and waffling growth pattern, with manufacturing particularly anemic. The report says there was economic improvement in the South, Midwest, and New England, and mixed performance in the West and lower Northeast during early autumn.
In the U.S. Treasury market, uncertainty over the elections was replaced by concern about today's unemployment report for October and next week's refunding auctions. This moved governments in the opposite direction from municipals, as the bellwether 30-year Treasury bond's yield rose nine basis points, to 7.68% from 7.59%.
The Bond Buyer's one-year note index was unchanged from a week ago at 2.91%.