A short supply of bonds and stabilizing economic reports kept the municipal market in a positive mood this week, pushing The Bond Buyer's indexes moderately lower.
Caution was still the prevalent mood, however, as issuers and investors alike remained on the sidelines waiting for today's employment report for May.
The 20-bond and 11-bond indexes of general obligation yields both edged four basis points lower, to 6.09% and 6.00%, respectively, from 6.13% and 6.04% a week ago.
The revenue bond index was off three basis points, to 6.38% from 6.41% last Thursday.
The GO indexes have not been lower since March 30, when the 20-bond index was 6.07%, and the 11-bond was 5.99%. The revenue bond index has not been lower since the 6.16% recorded on March 24.
The average yield to maturity of the 40 bonds used in the daily Municipal Bond Index, which is comprised mainly of revenue bonds, slipped one basis point, to 6.35% yesterday from 6.36% a week ago.
The lack of movement in the yield to maturity can be attributed in part to the twice-monthly revision in the index's list of bonds. The latest revision, on May 31, raised the average coupon rate by seven basis points, to 5.72% from 5.65%. That partially offset the effect on the yield of this week's price increases.
Movement in the municipal bond market was in virtual lockstep with government securities, as the yield on the Treasury's bellwether 30-year bond declined two basis points, to 7.34% yesterday from 7.36% last Thursday.
"The lack of supply and an expected surge in demand for muni bonds are the main reason behind the decline in the indexes," a municipal market analyst said. "The forward calendar remains very light, and no one is expecting anything in the pipeline for the next two weeks."
THe Bond Buyer's 30-day visible supply was $2.79 billion yesterday. That made it 10 straight business days that supply was below $4 billion and 21 of last 25 days that supply was below $5 billion.
So far in 1994, the measure of forward supply has been below $5 billion on 52 occasions. Last year, the 30-day visible supply was below $5 billion 22 times in the first five months of the year, and 78 days for the entire year.
Yesterday, the negotiated component of the 30-day visible supply was only $971 million, the lowest it has been since Sept. 16, 1993, when it was $861 million. Negotiated future supply has now been below $1 billion for three consecutive business days. The last time that happened was a traditionally slow holiday period -- Dec. 20-30, 1991 -- when the supply was below $1 billion for six days.
"We have too many people and not enough bonds," said a municipal bond broker with a major New York-based firm. "I think we're in for a dull summer."
The expected surge in demand is associated with an anticipated $29 billion in redemptions this month, "which could be earmarked for the muni market," the analyst said.
"We've had some stabilizers this week that show that the economy is sputtering along, but everyone's looking toward Friday's [today's] employment report," he continued. The monthly increase in employment, he noted, "has been averaging 369,000, which indicates the market could tolerate an increase of 250,000 to 300,000."
The short-term end of the market moved in the opposite direction of the longer term market. The Bond Buyer's one-year note index rose nine basis points to 3.81% on Wednesday from 3.72% a week earlier. That is the index's highest level since Dec. 11, 1991, when it was 3.92%.