Nearly all The Bond Buyer’s weekly yield indexes increased considerably throughout this holiday-shortened week as supply pressure weighed heavily on long-term munis.
“Yields have been backing up, particularly on the long end,” said Evan Rourke, portfolio manager at Eaton Vance. “There’s still a fairly hefty calendar. You’ve got long munis with a 4-handle; that’s making the market a little interesting. People are seeing opportunities heading into the large December-January reinvestment flows. There’s still uncertainty around, though.”
Tax-exempt yields were unchanged to slightly weaker both Friday and Monday before Tuesday’s onslaught of new-issue activity.
The municipal market was weaker by six to eight basis points overall Tuesday with the pricing of close to $4 billion of debt, with yields widening to 10 to 12 basis points on the long end.
The weakness led the Massachusetts Development Finance Agency to downsize its expected $740 million offering for Harvard University to $601.1 million and concede 20 basis points in yield, according to market sources, helping accelerate the market’s downward spiral.
Traders Tuesday indicated the issuer wanted to price the triple-A rated 30-year tax-exempt debt at 4.00%, but were forced to move yields up 20 basis points to complete the deal.
“The Harvard deal was about price discovery, and Build America Bonds masking demand on tax-exempts,” said Michael Pietronico, chief executive officer at Miller Tabak Asset Management. “The clearing level was dramatically higher in yield than was thought.”
Tuesday’s market also saw the pricing of $789.4 million of taxable BABs and tax-exempts for the Los Angeles County Public Works Financing Authority, $750 million of taxable BABs for the New York City Municipal Water Finance Authority, and $709.2 million of taxables, mostly BABs, for the University of California Regents.
“There’s been supply pressure over the last week that has been building to a crescendo,” Pietronico said. “The market seemed to have been broken Tuesday, and carried that theme Wednesday.”
The weakness persisted Wednesday, the last trading day before Thursday’s Veterans Day holiday, with yields increasing another five to seven basis points in 10-year debt and longer. Leading the new issues, California’s Santa Clara Valley Transportation Authority came to market with $647.6 million of tax-exempts and taxable BABs.
According to Municipal Market Data, one-year triple-A debt remained flat at 0.30% from last Thursday through Wednesday’s close. However, MMD’s triple-A scale yielded 2.62% in 10 years Wednesday, 16 basis points higher than last Thursday’s 2.46%, while the 20-year scale yielded 3.73%, 21 basis points more than a week ago. The scale for 30-year debt climbed 27 basis points to 4.17% Wednesday from 3.90% last Thursday.
Pietronico noted that the weakness could persist for a time, though he expects a “snap-back rally in December that will carry us through into the new year.”
The Bond Buyer 20-bond index of 20-year general obligation bond yields increased 22 basis points this week to 4.24%. That is the highest level for the index since July 22, when it was 4.26%.
The 11-bond GO index of higher-grade 20-year GO yields rose 21 basis points this week to 3.98%, which is the highest level for the index since July 15, when it was 4.09%.
The revenue bond index, which measures 30-year revenue bond yields, gained 17 basis points this week to 4.87%. That is its highest level since May 13, when it was 4.90%.
The Bond Buyer one-year note index, which is based on one-year tax-exempt note yields, declined two basis points this week to 0.46%, which is its lowest level since Sept. 29, when it was 0.44%.
The yield on the 10-year Treasury note increased 17 basis points this week to 2.66%, but remained below its 2.67% level from two weeks ago.
The yield on the 30-year Treasury bond jumped 21 basis points higher this week to 4.25%, which is the highest level for the yield since June 3, when it was 4.29%.
The weekly average yield to maturity on The Bond Buyer’s 40-bond municipal bond index, which is based on 40 long-term muni bond prices, climbed eight basis points this week to 5.03%. That is the highest weekly average for the yield to maturity since the week ended Aug. 12, when it was 5.04%.
