The Bond Buyer's weekly indexes made the first significant upward movement in a month as a directionless municipal bond market saw little reason for optimism.
The 20-bond index of general obligation yields rose nine basis points from a week ago, to 6.25% from 6.16% last week. The 11-bond index moved up eight basis points, to 6.16% from 6.08% Thursday.
The revenue bond index jumped 12 basis points to 6.49% from 6.37% a week earlier.
The average yield to maturity of the 40 bonds used in the daily Municipal Bond Index, most of which are revenue bonds, increased 13 basis points, to 6.44% yesterday from 6.41% the previous Thursday.
That put the weekly indexes at the highest levels since the week of July 7, when the 20-bond was at 6.27%, the 11-bond was at 6.19%, and the revenue bond was at 6.52%. Over the past four weeks, the GO indexes have declined a total of six basis points and the revenue index has lost 10 basis points.
"The [Treasury refunding] auctions were not well-received," said a broker at a major New York-based firm. "Muni prices were dragged down by Treasuries."
The ill-received quarterly refunding helped shoot the yield on the Treasury's bellwether 30-year bond. 25 basis points higher, to 7.65% yesterday from 7.40% a week earlier.
"Basically, the municipal market was led higher as the Treasury's refunding failed to elicit retail support," a municipal market analyst said,
"There were also concerns over strong inflation data received in the latter part of the week and uncertainty over the Federal Open Market Committee meeting next week. There are legitimate worries that the Fed is intent on tightening again," the analyst said.
Yesterday, the Labor Department reported that the producer price index surged 0.5% in July, which was higher than expected. However, the core rate, which excludes the more volatile food and energy components, was up only 0.1%.
"People are just waiting to see what the Fed does," a trader said. "We really don't have any direction at this point."
"The bid in the street is ugly and them is practically no flow," another trader said. "There's a bit of a retail bid, but that's it. Without supply, we have no benchmark and it's really hard to do much of anything."
The Bond Buyer's 30-day visible supply stood at $3.95 billion yesterday, an increase of only $180 million from last week. In fact, the measure of future supply has been under $5 billion for the last 16 days and on 92 occasions so far this year. In all of 1993, 30-day supply was under $5 billion only 78 times.
"Problems were also created when central banks in the European Common Market lowered some discount rates, which indicated that short-term yields may be bottoming out," the municipal analyst said. "That had a terrible effect on the dollar ... Investors may be forced to seek foreign denominated investments."
On the short end, The Bond Buyer's one-year note index rose seven basis points, to 4.01% on Wednesday from 3.94% a week earlier.