Players stayed away from the municipal market this week ahead of today's gross domestic product report, keeping The Bond Buyer's weekly indexes little changed from a week ago.
The 20-bond index of general obligation yields was unchanged for the second straight week, holding steady at 6.22%. The 11-bond index regained the basis point it dropped last week, rising to 6.14% from 6.13% last Thursday.
The revenue bond index also regained a basis point, rising to 6.47% from 6.46% a week earlier.
The average yield to maturity of the 40 bonds used in the daily Municipal Bond Index, most of which are revenue bonds, rose one basis point, to 6.40% yesterday from 6.39% the previous Thursday.
The government market reacted similarly, as the Treasury's bellwether 30-year bond was unchanged from a week earlier at 7.54%.
After wavering toward the downside most of the week, the tax-exempt market rallied yesterday following the Conference Board's report that its measure of help-wanted advertising fell in June, to 117 from a revised 121 in May. The Conference Board uses 1967 as a base of 100.
A large drop in initial claims for unemployment insurance benefits was ignored by the markets, which attributed the decline to temporary layoffs rather than an increase in new jobs.
"The potential of the Federal Reserve Board tightening again has been in the forefront of everyone's mind," a municipal bond market analyst said. "We have the pivotal number coming [Friday] with the GDP, and traders are waiting to see if the economy is picking up steam. There have been some predictions GDP may come in as strong as 5%, and that has the market concerned."
However, the analyst noted that there were some positive developments this week, which brought some bullishness back into the market. "The dollar does seem to be hitting a bottom, which has helped to ease some of the worries about a Fed tightening. And the muni market is establishing a nice bottom to rally from," he said.
Another market player expressed good feelings about the tax-exempt market. "I like this market right here," he said. "You can't buy anything on the bid side, we've hit the bottom of the trading range, discounts are underperforming par bonds ... and everybody is all beared up. We hit that 7.60% to 7.65% range on the bond, and people wanted to buy it there in a big way."
But other traders found the positive mood tinged with unease. "Obviously timing is everything," a trader with a major New York firm said. "We're worried the market has one more downswing to go, and it's going to happen on the GDP report. Unless you can get something on the bid side, it just doesn't pay at this point."
The short-end fared better this week, as The Bond Buyer's one-year note index decreased three basis points Wednesday, to 4.12% from 4.15%.