Yields on all four of The Bond Buyer's indexes rose slightly last week, as dealers minimized the price damage of a new-issue deluge by keeping bonds out of a decidedly weaker secondary market.
Tax-exempt yields increased only two to three basis points. Given the nearly $4.6 billion of new issues sold during the week, the performance appears strong. But municipal sources said the small yield increases are deceptive because underwriters and Wall Street dealers are holding back from selling bonds into the soft market.
"The dealers are somewhat reluctant to either sell them out at market prices or mark them to market," said Larry Liebers, vice president and municipal coordinator at Merrill Lynch & Co. "The bonds haven't been marked down to reflect true bids. The deals are selling but a lot of bonds remain in Street hands."
The two GO indexes both gained two basis points. The 20-bond index reached 6.80%, up from 6.78%, and the 11-bond index is at 6.5%, up from 6.55%.
The revenue bond index is up three basis points, to a 6.69% yield from 6.93% last Wednesday.
The yield to maturity of the 40 bonds in the municipal bond index technically is down two basis points from last Wednesday, to 6.88% from 6.90%, but the bonds in the index were revised last Monday, and the new group has a much lower average coupon rate than the previous group, 6.73% compared with 6.80%.
If the new group of bonds is compared to its week-ago yields, the charge is a two-basis-point increase, to 6.88% from 6.86%.
Yields in the Treasury market, meanwhile, fell steadily all week -- dropping more than 10 basis points thanks to anticipation of a Federal Reserve easing and dismal employment data. Usually, tax-exempts distantly echo Treasuries, but the municipal supply fundamentals derailed that pricing relationship.
Mr. Liebers said the municipal market looks good after it gets over this new-supply hump and strong New Year fundamentals begin to take hold. On Jan. 1, an enourmous proportion of municipal coupons are due and a large number of bonds will nature, he said, both of which will free up retail and institutional cash for reinvestment in the tax-exempt market.
"It's a good opportunity to buy bonds right now, where there is excess supply," Mr. Liebers said. "Some of the firms will even let you extend the settlement date so you can spend your money a little bit early.
"Once the supply dries up," he added. "You'll see a firmer tone in January."