Yields on The Bond Buyer's weekly bond indexes plunged roughly 20 basis points this week, to the lowest levels in nearly 13 years, as strong demand and a weak economy continued to fuel the surging market.
The daily Municipal Bond Index's average yield to par call dropped 19 basis points, to a record low of 6.28% from 6.47% last Thursday. The Bond Buyer began calculating the yield to par call on July 2, 1984.
The 30-year revenue bond index also hit an all-time low, falling 19 basis points, to 6.3% from 6.55%. That shattered the previous low of 6.53%, set on Jan. 9. The revenue bond index began on Sept. 20, 1979. This week's decline was the biggest since May 18, 1989, when it fell 26 basis points.
The 20-bond index of general obligation bonds dropped 21 basis points to 6.17% from 6.38% a week ago. The index is now at its lowest level since Aug. 16, 1979, when it was 6.16%.
The 11-bond GO index fell 22 basis points, to 6.07% from 6.29% last week, putting it at its lowest level since 6.05% on Aug. 30,1979.
The GO indexes' declines were the largest since Jan. 21, 1988, when both fell 22 basis points.
U.S. Treasury securities nearly matched the municipal market's performance, with the 30-year bond's yield dropping 16 basis points, to 7.59% from 7.75%.
The week started out with the market still rolling form last Friday's report that the unemployment rate rose in June to 7.8%, the highest level in eight years. That was followed quickly by the Federal Reserve's cut in the discount rate to 3%, the lowest since July 1963.
"You can't underestimate the weakness of these numbers," said Jeremy Gluck, an economist at Mitsubishi Bank. "A fall of this kind affects every other sector of the economy. Production, orders for durable goods, and personal income are all hurt by this."
Also, the tax-exempt market is in "very good technical shape," a bond trader said, with money flowing in from the July 1 bond calls and rates on other investments such as savings accounts at their lowest levels in decades.
"With all the money coming into the market after all those bonds were called, and renewed concern about the country's economy, municipal prices may be headed into uncharted territory," he said.
The upward pressure on bond prices was also intensified by a smaller new-issue calendar and a dearth of bonds in the secondary market.
"Guys that have bonds are holding onto them," a trader said. "The market now is at levels that were thought unreachable a couple of months ago.
"I can't see much that is capable of removing the firm tone of the market right now. If Friday's producer price index comes in to show that inflation is growing very rapidly, then that would be a problem."
He also pointed out that Standard & Poor's Corp.'s Blue List, which measures dealer inventories, was "so thin that if you held it up to a light, you could see right through it." The Blue List spent the week below the $1 billion mark.