Municipal bond yields resumed their summer-long decline this week, pushing the average yield to maturity of the 40 bonds used in the Municipal Bond Index to an all-time low.

The average yield to maturity fell three basis points this week, to 6.94%, which is the lowest it has been since The Bond Buyer began calculating the yield to maturity in January 1985.

The Municipal Bond Index itself, which is based on bond prices, rose to 94% 6/32 this week -- its highest level since Aug. 8, 1989, when it reached 94 14/32.

The 20-bond and 11-bond general obligation yield indexes, which had risen last week for the first time in 12 weeks, reversed direction and fell five basis points apiece, to 6.81% and 6.68%, respectively, from 6.86% and 6.73% a week ago. The 20-bond index matched its 1991 low, first set on Feb. 14, and the 11-bond is at its lowest point also since Feb. 14, when it hit this year's low of 6.63%.

The 30-year revenue bond index slipped two basis points this week, to 7.00% from 7.02%, and tied its 1991 low of 7.00%, set two weeks ago. The index has not been lower since March 5, 1987, when it reached its all-time low of 6.92%.

Tax-exempt prices started climbing after last Friday's report that unemployment was unchanged in August, rising about 1/8 point on hopes that the Fed would ease further. The market scored small price increases again on Monday and held onto the gains Tuesday as the market continued to wait for the Fed to ease. Yesterday's producer price data showed a 0.2% rise in the index of finished goods in August, after declines in the six previous months, which further heightened expectations for lower interest rates.

"They're confident that rates are coming lower," said the head of a New York trading desk. "Although we have a significant calendar, there seems to be enough confidence that the [inflation] numbers this week are not going to be enough to drive prices either way, especially to the downside."

Municipals continue to lag behind the U.S. Treasury market. The Treasury's bellwether 30-year bond dropped 14 basis points in yield during the week, to 7.95% from 8.09% a week ago.

Traders now speculate that the Fed will wait to look at tomorrow's consumer price figures and retail sales data before deciding whether or not to ease policy.

"[Yesterday's] numbers were only mildly better than expectations, and the market rallied," one trader said. "So [today's] numbers will have to be bad for it to go down."

In the short-term market, The Bond Buyer's one-year note index rose nine basis points, to 4.94% from 4.87%. Market participants attributed this to retail-oriented accounts ridding themselves of short-term paper and institutional traders looking warily at the upcoming calendar.

This week's note schedule included $1.45 billion of Pennsylvania tax anticipation notes, which were sold yesterday. The notes, the majority of which were won by Goldman, Sachs & Co., were reoffered to investors as 5.25s to yield 4.75% net.

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