Concerns about massive new-issue supply and falling Treasury prices kept investors out of an uncertain municipal market this week, pushing yields higher on The Bond Buyer's weekly bond indexes.
The 20-bond index of general obligation yields rose 11 basis points, to 6.27% from 6.16% last week. The 11 bond general obligation index was up 10 basis points, to 6.17% from 6.07% a week ago.
The 30-year revenue bond index climbed 12 basis points, to 6.43% from 6.31 % last week.
The daily Municipal Bond Index's average yield to maturity increased 11 basis points, to 6.34% from 6.23%.
Municipal and government bond prices moved in tandem this week, as the bellwether 30-year Treasury bond yield rose 11 basis points, to 7.33% from 7.22% on Sept. 10.
After a two-week rally based on data that showed the economy still growing sluggishly, the tax-exempt market lost as much as 1/2 point last Friday on the news that $6.62 billion of bonds were expected to come to market this week.
On Monday, the markets rose 1/8 point to 1/2 point in sympathy with Treasuries in the early going, but then took a dive later in the day on news that forward supply was hitting its highest levels in seven years.
The Bond Buyer's 30-day visible supply jumped to $8.15 billion, its highest level since Nov. 13, 1985, when it totaled $8.89 billion. By session's end, most municipal prices were down 1/8 to V4 point, and some as much as 1/2 point.
Traders all pointed to the increasing supply pressures and downturn in Treasuries for the market's afflictions.
"Supply is up, governments are down - boom, boom - municipals are off," one trader said.
Tuesday brought no relief, as supply weighed heavily on the market.
The Commerce Department's report that August retail sales fell 0.5%, which boded well for the credit markets, was totally ignored.
Volatile conditions spurred dealers to pull offerings from the market. First Boston Corp. chose to postpone a $700 million sale of Washington Public Power Supply System revenue bonds that had been scheduled for sale on Tuesday. On Wednesday, Goldman, Sachs & Co. postponed the sale of $530 million of Ohio Water Development Authority refunding bonds.
Wednesday's slate of favorable economic news did nothing to rally the market. The Federal Reserve announced that industrial production in August dropped 0.5%, partly on damage from Hurricane Andrew and strikes at several General Motors Corp.'s plants.
But that news was overshadowed by the revised 30-day visible supply figure, which hit $8.64 billion, just shy of the all-time high.
The negotiated visible supply did set a record of $7.22 billion, eclipsing the previous high of $6.7 billion set on Nov 13, 1985.
Compounding the supply problems was the chaotic situation in the European currency markets, brought on by rapid increases in lending rates by Britain's and Sweden's central banks. Those moves were followed by key rate cuts in Belgium and the Netherlands as these nations attempted to resolve the chaos in the currency markets.
In the short-term sector, The Bond Buyer's one-year note index jumped 20 basis points, to 3.17% from last week's 2.97%.