A bulging new-issue calendar and worrisome comments from Federal Reserve Board Chairman Alan Greenspan combined to create double-digit yield increases in The Bond Buyer's weekly indexes, erasing five weeks of rising prices.
The 20-bond and 11-bond indexes of general obligation bonds both jumped 11 basis points, to 5.61% and 5.51%, respectively, from 5.50% and 5.40% last week.
The 30-year revenue bond index was tallied at 5.87%, up 13 basis points from last week's 5.74%, which was its lowest level since early March.
The average yield to maturity of the 40 bonds used to calculate the daily Municipal Bond Index rose 10 basis points last week, to 5.79% from 5.69%.
The 30-year Treasury bond's yield was 6.66%, up 11 basis points from 6.55% last week.
"New-issue supply and a burdensome secondary in an overbought market brought a very heavy tone this week," a market analyst said.
For the past month the municipal bond market has been swamped with new issues. Weekly bond and note sales have averaged $9.02 billion since the middle of June, and this week's expected sales were a hefty $9.67 billion. The Bond Buyer's 30-day visible supply, which measures upcoming issuance, has surged beyond $8 billion in seven of the past nine business days.
This week, however, buyers were not stepping forward to snap up the new issues. Standard & Poor's Corp.'s The Blue List, which charts dealer inventory, hit $2.11 billion on Thursday -- the highest level since March 16, 1992.
"A lot of the mutual funds reinvested their redemption income earlier on, " one market player said.
"There was a lot of bid-wanteds on pre-refunded bonds this week, especially by the funds," a bond trader said. "That's an indication that the cash flow is slowing ... There's a lot of supply with little demand and that's what's pushed the market down."
"The market's also a little edgy about a compromise on [President] Clinton's budget deficit package," the analyst continued. "And
Greenspan's comments gave a hint toward tightening in monetary policy down the road. "
Greenspan, in his semiannual Humphrey-Hawkins testimony on the economy and monetary policy, said, "Inflation this year must be characterized as disappointing ... The rate of inflation has at best stabilized, rather than easing further as past relationships would have suggested."
Greenspan went on to say that although the Fed is still accommodative, its officials still want to achieve price stability.
The one-year note index was calculated at 2.89%, up nine basis points from 2.80% last week. It is now at its highest level since Nov. 28, 1992, when it was 2.90%.