The Bond Buyer's indexes hit a bump in their downhill run to lower yields this week as municipal market rates were yanked upward by a correction in the U.S. Treasury market.
The 20-bond and 11-bond indexes of general obligation bonds each rose two basis points, 6.66% and 6.52%, respectively, from 6.64% and 6.50%
The revenue bond index climb three basis points, to 6.90% from 6.87%.
The average yield to maturity of the 40 bonds used in the Municipal Bond Index was up one basis point this week, to 6.89% from 6.88% a week ago.
In the 16 weeks since June 13, the GO indexes have declined every week but one, and the revenue bond index has fallen in all but two weeks. This week's rise in yields was described by the head of one New York trading desk as the "first technical correction we've had throughout that entire period."
"We're in a status quo period now, with a slight bias towards higher rates," he said.
Despite the correction, the market's general tone remains firm. Another New York trader admitted, "We were overdue for a move," but emphasized the market's bullishness. "There is still money out there," he said, "especially at slightly lower [price] levels."
Municipal bond prices did not sink nearly as far, however, as long-term U.S. government securities did thisweek. The Treasury decline began late Tuesday on a wave of retail selling, which traders blamed on investors setting up for Wednesday's seven-year note auction and a weak close in the futures market, which made some investors nervous.
On Wednesday, Treasury prices dropped more than a point on the long ened. Traders and analysts said the market had been moving higher for so long and retail investors had loaded up their portfolios so heavily that the correction was no surprise.
"Everybody got caught long, and nothing's working here," a government coupon trader said. "Guys are trying to get out and limit their losses."
Securities prices also were driven lower by disappointment that an expected ease in the Federal Reserve Board's monetary policy never materialized. Some market participants saw a soft federal funds rate of about 5-1/16% on Wednesday morning to be a sign that the Fed was sneaking the rate lower, a government trader said. Securities were bought on that basis, and the buyers were disappointed when a round of matched sales by the Fed proved them wrong, he said.
Another government coupon trader questioned whether the Fed's intervention was all that ailed the market.
"There is a little selling pressure along the curve, which is not necessarily appropriate, in my mind, given the trend that people say is intact," he said. "It may suggest the market has run out of energy and ability to buy marginal new debt."
Despite troubles on the long end, the short-term municipal market continued to perform well. The Bond Buyer's one-year note index fell 22 basis points, to 4.38% from 4.60%. The index has not been lower since Feb. 20, when it was at 4.19%.