The Bond Buyer’s weekly yield indexes mostly fell this week as the Federal Reserve’s plan to support credit markets by buying Treasuries sparked a rally in state and local government debt.
This week’s indexes cover a stark about-face in munis. Yields crept up late last week and early this week, and eased down later in the week. Two issues bifurcated the period.
Late last week and early this week, concerns about heavy supply coming to market weighed on bond prices.
The Bond Buyer 30-day visible supply — which measures new issues slated for sale in the next month — burgeoned to $19.52 billion this week.
Visible supply has been heavier only a few times since the mid-1980s. The average supply since 2000 is $8.6 billion.
Worries about what the new supply might do to prices pressured yields higher. The yield on triple-A rated 10-year munis leaped seven basis points between last week and the day before the Fed meeting, according to Municipal Market Data. During the same period, the yield for 30-years jumped five basis points.
A Fed statement following its policy-setting meeting Wednesday afternoon halted that incline.
There the Fed said it will buy $300 billion of long-term Treasuries to support credit markets.
The statement knocked Treasury yields to their steepest drop since the early 1960s.
“People just didn’t see it coming,” said John Derrick, who manages Treasury and muni money-market funds at U.S. Global Investors. “They used the 'shock and awe’ approach, if you will, and really caught people off-guard.”
Ten-year Treasury yields plunged 46 basis points after the Fed announcement, the steepest drop in more than 45 years. For the week, the yield sank 28 basis points to 2.6%.
Municipals followed suit, belatedly.
Yields on munis dipped three to five basis points on Wednesday and plunged 15 basis points Thursday, traders said.
Overall, the 20-bond index of general obligation yields slipped five basis points to 4.98%, the 11-bond index sank five basis points to 4.75%, and the revenue bond index fell two basis points to 5.81%. All three of these yield indexes are still higher than they were two weeks ago.
The one-year note index sank three basis points to 0.73%, tying its lowest level since the index was created in 1989.
The weekly average yield to maturity on The Bond Buyer 40-bond municipal bond index finished at 5.61%, up six basis points from last week’s 5.55%.
