Yields on The Bond Buyer's weekly bond indexes spiked higher this week, as the tax-exempt market continued the correction that began last Thursday.
The 20-bond and 11-bond indexes of general obligation yields both jumped 17 basis points, to 6.06% and 5.97%, respectively, from 5.89% and 5.80% last week.
The 30-year revenue bond index rose 12 basis points, to 6.24% from 6.12 last week.
The daily Municipal Bond Index's average yield to par call increased 10 basis points, to 6.18% from 6.08% last Thursday.
The U.S. Treasury market resisted the downward pressure on prices, with the 30-year Treasury bond's yield inching one basis point higher, to 7.44% from 7.43% last Thursday.
The municipal market gave back all of the gains it made last week and ended up at virtually the same levels as two weeks ago. A trader said the market had skyrocketed out of sight after last month's unemployment report and this week had been a correction of that rally.
"There have been a lot of people out there who have been hit very hard by this past week's action," the trader said. "One of my accounts had dropped 27 basis points since last Wednesday."
However, strong demand for a heavy slate of bonds did keep the market's tone positive, as investors flush with cash from the July 1 redemptions happily snapped up the week's $4.73 billion of new issues. They were also willing to wait for more attractive prices.
"Investors of long-term paper can see the calendar of new issues is starting to build and are willing to wait this run out," an analyst said Tuesday, when $3.4 billion hit the markets. "In the last few sessions, high-grades have come down as much as 1/1 point."
Economic data released this week essentially reinforced the market's belief that the economy was growing modestly at best. On Wednesday, the Federal Reserve Board's so-called beige book report said economic activity was "uneven across the nation" in late June and July, with manufacturing and retail sales improving modestly but commercial loan demand and real estate activity weakening.
Yesterday, the Labor Department reported that new claims for state unemployment insurance benefits soared 69,000, the highest rise in more than 10 years, to 469,000 for the week ended July 25. This was fueled primarily by a two-week shutdown at General Motors Corp.
Tax-exempts were driven higher briefly Wednesday on a rumor that the Treasury would cut the size of the next 30-year bond auction. The gains were quickly lost when the Treasury announced that the next quarter's refunding would be unchanged at $36 billion.
Market participants were not overly influenced by these numbers, looking instead toward today's employment data.
"If the July unemployment report comes in like last month's, then you can expect [prices to] return to the sky," said the head of a trading desk.
Unemployment rose to 7.8% in June, its highest level in eight years. The release of that data was followed by the Federal Reserve's cut in the discount rate to 3%.
In the short-term sector, The Bond Buyer's one-year note index rose two basis points, to 3.01% from 2.99% last week.