Yields on The Bond Buyer's municipal bond indexes fell for the fifth straight week in a row, reaching or approaching their lowest levels in over a decade.
The declines were spurred by persistently strong demand and more evidence of an anemic economic recovery.
The 20-bond index of general obligation bonds declined to its lowest level in nearly 13 years, dropping four basis points, to 6.38% from 6.42% last week. It is now at its lowest level since Aug. 30, 1979. when it was at 6.36%.
The daily Municipal Bond Index's yield to maturity reached a record low for the third consecutive week. The daily index's average yield to maturity fell eight basis points to 6.45% from 6.53% last Wednesday. The Bond Buyer began calculating the yield to maturity on Jan. 1, 1985.
Part of the yield to maturity's decline can be attributed to Wednesday's revision in the list of 40 bonds used to calculate the Municipal Bond Index. Nine bonds in the index were replaced by new issues, pushing the average coupon rate down to 6.40% from 6.47%.
The 11-bond index of general obligation bonds fell two basis points to 6.29% from 6.31% last week. The index is just one basis point above its 1992 low of 6.28%, set on Jan. 9, which was the lowest it has been since it was 6.23% on Sept. 27, 1979.
The 30-year revenue bond index's yield was off three basis points, to 6.55% from 6.58%. The index is just two basis points above its all-time low of 6.53%, set Jan. 9 of this year. The revenue bond index began on Sept. 20, 1979.
The long-term U.S. Treasury market did not perform as well as municipals, as the 30-year government bond's yield edged one basis point lower, to 7.75% from 7.76%.
Investor demand for municipals has been so strong that no even a record volume of sales has been able to dampen the price rally. According to preliminary figures compiled by The Bond Buyer from Securities Data Co.'s data base, $111.75 billion of municipal bonds were issued in the first six months, a whopping 58% increase from the $74.16 billion sold in the same period last year.
"In spite of the fact that the market should be choking on supply, there just isn't enough," said George Friedlander, a managing director with Smith Barney, Harris Upham & Co. "If anything, there is a shortage.
"There's a lot of money pointed to our [municipal bond] market because of the large amount of bond calls, the ridiculously low rates in short-terms, money rolling over from certificates of deposit. We've been able to absorb a shocking amount of volume without batting an eye."
The persistence of this powerful demand for bonds also has brought some issuers to the market, said Robert Chamberlin, senior vice president of municipal research/marketing with Dean Witter Reynolds Inc. "The length of the process of rates gradually coming down has brought in a multitude of issuers who might not have otherwise sold bonds in the market," he said.
Mr. Chamberlin pointed to the first-half rise in new-money issues, which jumped 16%, to $63.96 billion from $55.06 billion a year ago, as indicative of just how strong the lure of low rates has been to a wide spectrum of issuers.
He also noted that "capital formation is intense in both the stock and corporate markets ... which has helped municipals perform in a big way."
Economic reports also helped move bond yields lower this week. On Tuesday, the Chicago Purchasing Management Association reported that its monthly business barometer edged slightly higher in June, to a seasonally adjusted 55.7. An association spokesman said the increase indicated "a steady-as-you-go course which verifies the anemic recovery of the economy to date."
In another report Tuesday, the Conference Board's consumer confidence index slipped in June, to 71.7 from 71.9 in May, after rising almost 25 points over the past three months. Economists had expected the index to climb to 73.5.
For the most part, however, the markets continued to wait for today's report on unemployment in June, with expectations of a modest rise of 75,000 in non-farm payrolls, and for a Federal Reserve Board ease in monetary policy.
"It's a spy-versus-spy game against unemployment," one trader said. "If the economic data are good for bonds, there's nothing keeping us down. But bidding bonds at these levels makes you nervous - you have to worried at these levels."
A trader said he believed the lower rates were totally justified, adding, "It's possible they could go to even lower levels for the balance of the year."
Mr. Chamberlin, however, expressed reservations about lower rates, saying that "each quarter-percentage blip in the weekly indexes is a matter of concern for the retail side. If the index falls below 5%, for instance ... how will we move all this prime paper?
"Of course, I don't think anyone's thinking about that now," he said.
In the short-term note sector, The Bond Buyer's one-year note index was unchanged at 3.04%.
