The Bond Buyer's municipal bond indexes rose sharply this week, putting the weekly indexes at their highest yields in almost two years, as bond prices failed to recover from yet another Friday battering.

The 20-bond index and 11-bond index each gained 13 points from last Thursday to yesterday, with the 20-bond rising from 6.24% to 6.37%, and the 11-bond from 6.16% to 6.29%. That put the 20-bond index at its highest level since Nov. 12, 1992, when it was 6.38%, and the 11-bond index at its highest point since Nov. 5, 1992, when it was 6.42%.

The 30-year revenue bond index jumped 15 basis points, to 6.66% from 6.51% a week ago, and reached its highest level since 6.70% on Nov. 5, 1992.

The average yield to maturity of the 40 bonds used in calculating the daily Municipal Bond Index rose nine basis points, to 6.53% from 6.44% last Thursday. The yield is now at its highest level since June 3 of this year, when it was 6.61%.

U.S. government securities fared roughly the same, with the bellwether 30-year Treasury bond's yield jumping 14 basis points, to 7.77% from 7.63% last Thursday.

In a repeat of the previous week, fixed-income prices took it on the chin Friday from key economic indicators.

Two weeks ago, a 0.6% jump in the producer price index caused prices to free-fall; last week, a 0.7% climb in industrial production and a 0.4% rise in capacity utilization pushed tax-exempt dollar bonds down 3/4 to one point on the day. These reports all indicate that the economy is picking up steam and increasing the inflationary pressures that would lead the Federal Reserve to raise interest rates.

Municipal prices made a slight recovery-Monday, assisted by meager activity in bid-wanted lists. But they stumbled badly on Tuesday, dropping 3/8 to 1/2 point after the Commerce Department reported a 21.6% jump in the U.S. trade deficit for July and finishing 1/4 to 3/8 point lower on the day.

The bad news continued to pile up Wednesday as Wayne Angell, former Federal Reserve governor and now chief economist at Bear, Steams & Co., predicted that the Federal Open Market Committee could increase the federal funds and discount rates as early as next Tuesday. Municipal bond prices responded by finishing unchanged to 3/8 point lower.

In the short end of the municipal market, the Bond Buyer's one-year note index rose seven basis points this week, to 4.09% from 4.02% last Wednesday. It is now at its highest level since Aug. 17, when it was 4.12%.

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