Heavy new-issue supply and turbulent currency markets continued to burden the municipal market this week, pushing yields higher on The Bond Buyer's weekly bond indexes.
The 20-bond and 1 -bond indexes of general obligation yields both increased six basis points, to 6.33% and 6.23%. respectively, from 6.27% and 6.17% a week ago. The GO indexes have not been at such levels since July 1, when the 20-bond was 6.38% and the 11-bond was 6.29%.
The 30-year revenue bond index also rose six basis points, to 6.49% from 6.43% last week. The last time the revenue bond index was higher was on July 1, when it was reported at 6.55%.
The daily Municipal Bond Index's average yield, to maturity increased seven basis points, to 6.41% from 6.34%. On Tuesday and Wednesday, the yield hit 6.42%. its highest level since it reached 6.45% on July 1.
Forward supply continued to push municipal prices down this week. The Bond Buyer's 30-day visible supply set record highs three days in a row, peaking on Tuesday at $10.86 billion. Negotiated bonds accounted for the sudden surge, reaching an all-time high of $9.23 billion on Tuesday.
The visible supply includes 21 negotiated issues, totaling $1.68 billion, that are listed as "day-to-day." In other words, they will be offered only when the market settles down.
Uncertainty caused by the specter of massive forward supply and a weak Treasury market delayed several major tax-exempt sales. The biggest postponement was a $1.4 billion negotiated issue of North Carolina Eastern Municipal Power Agency revenue bonds, which Smith Barney, Harris Upham & Co., the senior manager, attributed to "market conditions."
Also pulled from the calendar were $700 million of Washington Public Power Supply System revenue bonds, $446 million of Puerto Rico Electric Power Authority refunding bonds, and $450 million of Illinois State Toll Highway Authority bonds. A source at Donaldson, Lufkin & Jenrette Securities Corp., lead underwriter for the Illinois sale, said it was tentatively re-scheduled for next week.
Adding to the municipal market's woes was a weak Treasury market that continued to be dragged down by turmoil in the European currency markets. This week's actions included Germany announcing it did not plan to make any further changes in its monetary policy, France raising interest rates to bolster the franc, and the dollar hitting an all-time low against the yen. Adding to the commotion, the International Monetary Fund made an unusually direct plea for the U.S. to raise interest rates once the economic recovery began picking up speed. Treasury bond prices fell slightly this week, with the bell-wether 30-year bond's yield rising eight basis points, to 7.41% from 7.33% on Sept. 17.
"There's just tremendous [municipal] supply out there that's backing up yields," a market participant said yesterday. "And the 30-year [Treasury bond] is down quite a bit from a couole of weeks ago, as well as what's been going on in the overseas currency markets. But prices are rebounding a little. The market's slightly stronger. I think we've put in the lows for now."
The managing director of a Wall Street firm agreed. "Supply is starting to get cleaned up," he said. "There's still a good deal of cash out there, and there is the opportunity to make some bucks."
The director said that by next week, "the market should show more strength, rather than the pressure we've been seeing under weak Treasuries."
"People should start looking forward to upcoming supply with anticipation of picking up some cheap bonds," the he added.
In the short-term sector, The Bond Buyer's one-year note index decreased five basis points, to.3.12% from last week's 3.17%.