After a brief respite, The Bond Buyer's municipal bond indexes rose this week for the sixth time in seven weeks, as last week's rally dissipated in the face of economic reports showing strong growth and pressure on prices.
The 20-bond and 11-bond indexes of general obligation yields each gained five basis points. The 20-bond index rose to 6.49% from 6.44%, and the 11-bond index climbed to 6.40% from 6.35% last Thursday.
The 30-year revenue bond index rose eight basis points, to 6.81% yesterday from 6.73% a week ago.
The average yield to maturity of the 40 bonds used in calculating the daily Municipal Bond Index -- most of them revenue bonds -- gained seven basis points, to 6.69% yesterday from 6.62% last Thursday. Pan of the increase can be attributed to the twice-monthly revision in the bonds used in the index; the latest revision, which took effect Monday, raised the 40 bonds' average coupon rate to 6.06% from 6.03%.
Prices of long-term U.S. government securities dropped considerably fanher than municias the yield on the bellwether 30-year Treasury bond rose 16 basis points, to 7.99% yesterday from 7.83% last Thursday. Bonds took their biggest hit of the week yesterday, with municipals falling 1/2 to 1/4 and long U.S. Treasuries plunging a full point.
The Commerce Department threw the first punch, reporting that housing starts jumped 4.4% in September to the highest level since December 1993. Analysts had expected starts to fall 2%. A second blow came from the Federal Reserve Bank of Philadelphia, which reported in its business outlook survey for October that manufacturing activity and prices rose substantially. The weekly report on initial claims for state unemployment benefits, showing a 3,000 decline for the week ended Oct. 15, was generally ignored.
Yesterday's slump wiped out what little was left of last week's rally, which had extended itself one more day, into Friday. Municipals rose 1/8 point and Treasuries nearly 1/4 that day, boosted by several economic reports: Consumer prices rose by the expected 0.2% in September, industrial production was unchanged, and an 0.6% increase in retail sales also was in line with expectations.
The rally began to peter out Monday, as long Treasuries straggled to recoup early losses caused by a declimng dollar. Municipals closed unchanged, as a continuing flow of bids-wanted lists from mutual funds kept bond prices from rising as they usually would in a market devoid of new bond offerings.
Tax-exempt prices rentamcu unchanged Tuesday, even though Treasuries dropped 1/2 point. A brief Treasury rally, based on false rumors that the Federal Reserve would not tighten monetary policy again in 1994, was wiped out by profit taking. U.S. government prices fell further after Fed governor Susan Phillips said the economy was "showing surprising strength," and the latest Johnson Redbook report showed retail sales continuing at a fairly moderate pace. The pressure from bid lists and weaker Treasury prices did get to municipals Wednesday, pushing tax-exempt prices down 1/4 point on the day. Treasuries dropped 7/32, as the dollar tested new lows against the Japanese yen and the Commerce Department reported a $9.7 billion trade deficit for August.
In the short end, The Bond Buyer's one-year note index rose five basis points this week, to 4.13% on Wednesday from 4.08% last Wednesday.