Yields on The Bond Buyer's indexes rose slightly this week, as tax-exempt bond prices firmed somewhat after large losses early in the week.
The 20-bond index of general obligation yields rose two basis points on the week, to 6.18% yesterday from 6.16% last Thursday. The 11-bond index was up three basis points, to 6.10% from 6.07%. The revenue bond index edged one basis point higher, to 6.43% from 6.42%.
The average yield to maturity of the 40 bonds used in the daily Municipal Bond Index, which is comprised mainly of revenue bonds, rose five basis points, to 6.37% yesterday from 6.32% the previous Thursday.
The larger gain 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 April 30, raised the average coupon rate of the 40 bonds by nine basis points, to 5.45% from 5.36%.
While the market's tone has become more positive, sales and trading activity was muted as players were cautious ahead of Friday's employment report. In addition, Wednesday's plunge in the dollar's value overseas refocused attention on the much-anticipated hike in the Federal Reserve Board's federal funds target range as well as on a possible increase in the discount rate.
"The market performed well, even on the downside," said a trader with a major New York-based firm. "Munis are all right. We're seeing enough of a bid to be okay."
The Treasury market took the strong economic indicators harder than municipals. The yield on the 30-year Treasury bond rose five basis points on the week, to 7.31% yesterday from 7.26% last Thursday.
Two economic reports released Monday drove Treasury prices lower even as tax-exempts had begun to rise. The Commerce Department said construction spending climbed 0.8% in March, to a seasonally adjusted $495.4 billion, all of it from privately financed projects. The National Association of Purchasing Managers reported that its index rose to 57.7% in April from 56.7% in March. Economists had expected the indicator to decline.
On Wednesday, the central banks of several major nations coordinated efforts to buy dollars to prop up the sagging currency. The intervention managed to provide enough propellant for the dollar to bounce back, which allowed for Treasuries to rally. But by then, attention had again returned to the likelihood that the Federal Reserve Board will raise not only the fed funds target range but also the discount rate.
"The market is building in the potential for another rate increase intended to prop up the level of the dollar," a fixed-income trader said. "The Fed is in a position where it has to do its job and protect the level of the currency and avoid inflation."
The Bond Buyer's one-year note index rose for the third straight week, adding six basis points, to 3.63% from 3.57% last Wednesday. Since reaching an all-time low on Dec. 8, 1993, the one-year note has risen 138 basis points and is now at its highest level since Dec. 18, 1991, when it was 3.76%.
"The short-end has been suffering from money fund outflows," a note analyst said. "People have been afraid to go too far out on the curve. The short-term yield curve out to '95 has steepened."