Yields Weaken Amid Hearty Serving of Supply

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Municipal bonds yields weakened a touch during the week as a slug of new debt came to market at a time of low nominal yields.

The Bond Buyer’s 20-bond index of 20-year general obligation bonds ticked up two basis points this week, to 3.84%. It is unchanged from two weeks ago.

The 11-bond index of higher-grade 20-year GO yields is also unchanged from two weeks ago at 3.58%, having drifted up two basis points in the past week.

Municipal governments were scheduled to bring $8 billion of new bonds to market even as yields remain too low to excite many investors.

Rates on municipal bonds still reflect the supply-demand imbalance that launched the sector on a mighty rally this summer.

Investors entrusted nearly $9 billion combined to muni mutual funds in July and August, precisely on time for the market to take a holiday.

Even as these funds were armed with all this new cash, municipalities brought paltry batches of new debt to market in late August.

That dragged yields to record lows, and they still have not drifted far off those levels.

Randy Smolik, an analyst for Thomson Reuters, said investors have “little enthusiasm” for such yields.

Now “constant supply” leaves buyers reluctant to reach for bonds.

The revenue bond index, which measures 30-year revenue bond yields, gained three basis points this week, to 4.6%. That is its highest level since Sept. 16, when it was 4.63%.

The Bond Buyer’s one-year note index also rose three basis points this week, to 0.5%, which is its highest level since Sept. 1, when it was 0.51%.

The yield on the Treasury’s 10-year note rose five basis points this week, to 2.55%, which is its highest level since Sept. 23,, when it was 2.56%.

The yield on the Treasury’s 30-year bond gained six basis points this week, to 3.96%, which is its highest level since Aug. 5, when it was 4.06%.

The weekly average yield to maturity on The Bond Buyer’s 40-bond municipal bond index, which is based on 40 long-term municipal bond prices, finished at 4.89%, up two basis points from last week.

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