The Bond Buyer's indexes edged higher for the second consecutive week as a higher-than-expected September consumer price index dashed hopes that the Federal Reserve Board would ease monetary policy.
The 20-bond index of general obligation bonds rose one basis point, to 6.67% from 6.66% a week ago, and the 11-bond 60 index was up two basis points, to 6.54% from 6.52%.
The revenue bond index inched up one basis point, to 6.91% from 6.90%.
The average yield maturity of the 40 bonds used in the Municipal Bond Index declined three basis points this week, to 6.86% from 6.89% a week ago.
Throughout the week, the municipal market posted slight price gains in light activity in the holiday week. The tone was firm, with new-issue yields declining as the demand continued to exceed the supply.
Participants were certain the Fed would ease monetary policy. But yesterday's report that the consumer price index rose 0.4% in September -- its largest increase since January -- squelched the market's expectations. Analysts had expected the index to rise 0.2% juast as it did in June, July, and August.
Despite the disappointment, tax-exempts were off only 1/4 point yes-
"We've been down this road so many times that we had a pretty muted reaction," a New York based trader said. "Right now, the bid seems to be holding in at yesterday's [Wednesday] closing levels. But we'll have to wait and see what happens."
The Treasury market took the inflation news hard, with the 30-year bond dropping more than a full point. By late yesterday, the bellwether 30-year bond was yielding 7.98%, up two basis points on the week from 7.96% last Thursday.
"It was pretty logical," a government note trader said. "Numbers came out that were bad, and retail sold."
The market stabilized when retail investors started buying at the lows, taking securities maturing in five years or less.
Stephen Gallagher, an economist at Kidder, Peabody & Co., said the bigger-than-expected increase in consumer prices meant it would be a couple of weeks before the Fed would consider cutting interest rates. An easing move might occur after Nov. 1, when the October employment report is released, he said.
In the short-term market, The Bond Buyer's one-year note rose 11 basis points, to 4.49% from 4.38%.