The Bond Buyer's weekly bond indexes declined modestly in yield this week, as tax-exempt prices were revived by a solid rally in the Treasury market and by a spate of negative economic reports that raised hopes of another easing in monetary policy.
The 20-bond index of general obligation yields declined six basis points, to 6.27% from 6.33% a week ago. The 11-bond GO index decreased five basis points, to 6.18% from 6.23%.
The 30-year revenue bond index was off four basis points, to 6.45% from 6.49% last week.
The daily Municipal Bond Index's average yield to maturity fell five basis points, to 6.36% from 6.41%.
"There was a good rally in the Treasury market., with follow-through in municipals," one trader said. U.S. government bond prices outperformed tax-exempts, with the bellwether 30-year bond's yield falling 12 basis points, to 7.29% from 7.41% on Sept. 24.
The trader also noted that "there was a curtailment in supply, considering that investors were expecting overwhelming [new issuance]" and that "the economy continues to show anemic growth and there is concern that the economy will be sluggish for many months."
"Bond yields should continue trading in a range, tending toward the lower end," the trader concluded.
The Treasury market has contributed to municipals' up-and-down tone through the effects of negative arbitrage. Short-term Treasury yields have fallen so low that municipal issuers who do advance refundings have to buy Treasury securities that yield less than the bonds being refunded, which eats up their savings.
As a result, a number of large refunding deals have been delayed until short-term Treasury yields increase. The Bond Buyer's negotiated calendar lists 27 offerings, totalling $2.02 billion, scheduled for sale on a "day-today" basis. Sixteen of those issues, totaling $1.55 billion, are refundings.
"Right now, refundings are not feasible," said Robert Chamberlin, senior vice president of municipal research and marketing at Dean Witter Reynolds Inc. "You just can't get the same market price from late July.
"There is a substantial number of issuers who are obsessed with getting financing done before the election. This is volume that doesn't have to come ... why buy into a market with a limited capacity to absorb volume? And volume cheapens the market.
"Despite fundamentals that should be wonderful for municipals, the market is going backwards. It feeds on itself. We think the market is getting cheaper, and it does get cheaper."
The Bond Buyer's weekly figures for bond sales and anticipated financing clearly illustrate this trend, Mr. Chamberlin said. In the nine-week period from June 4 to July 30, the 20-bond index fell from 6.57% to a 14-year low of 5.89%.
During that time, issuers sold an average of $3.67 billion of bonds a week and scheduled an average of $3.11 billion for the following week - indicating that issuers were more willing to bring deals to the market.
Since then, however, the indexes have been moving up and down tending toward higher levels. Meanwhile, actual sales have everaged $4.18 billion, but anticipated sales have averaged an even higher $5.19 billion.
In the short-term sector, The bond Buyer's one-year note index dropped 25 basis points, to a record low of 2.8%, from last Week's 3.12%.