The municipal bond market followed up a holiday week with relatively steady yields in the face of increasing supply, slack Treasuries and a stock market rally.
Primary market supply jumped to around an expected $6 billion this week from the last week's anticipated low of $1.29 billion.
But yields, especially on the short and intermediate end, hardly budged, revealing a stronger tone in the market and greater interest on the part of investors.
The benchmark 10-year muni yield rose one basis point on the week, according to the Municipal Market Data triple-A scale.
The two-year muni yield fell three basis points over the same period.
Only the 30-year muni yield managed a significant move, weakening 11 basis points.
Most of the recent demand has been within 10 years, primarily with high-grade issues, according to Howard Mackey, president of the broker-dealer unit of Rice Financial Products. "That's probably where you're going to continue to see the strongest demand for a while," he said.
At the same time, though, muni bond indexes have mostly pushed higher for the week.
The Bond Buyer's 20-bond index of 20-year general obligation yields increased five basis points this week to 4.12%. It sits at its highest level since Oct. 27, when it was also 4.12%.
The 11-bond index of higher-grade 20-year GO yields rose four basis points this week to 3.85%, reaching its highest level since Oct. 27, when it was also 3.85%.
The yield on the Treasury's 10-year note increased 17 basis points this week to 2.11%, its highest level since Oct. 27 when it was 2.40%.
The yield on the Treasury's 30-year bond gained 21 basis points this week to 3.12%, which is its highest level since Oct. 27, when it was 3.45%.
Muni-Treasury ratios continue to hold the key to investor interest, Mackey said. On the week, ratios to Treasuries have fallen on the intermediate and long ends of the curve, dropping 10 percentage points in the 10-year range and seven percentage points in the 30-year range, but remain attractive by historical standards.
But over the past month, the 10-year ratio has averaged around 113%, Mackey said. And that level, even with still-low absolute muni yields, prompted institutions and some individual investors to give munis a closer look, he said. It's also been pulling in crossover buyers.
"To capture these kinds of ratios within 10 years for triple-A-rated and other high-grade paper is probably a good risk," Mackey said.
The revenue bond index, which measures 30-year revenue bond yields, rose three basis points this week to 5.09%, pushing back to the same level as two weeks ago.
The Bond Buyer's one-year note index declined two basis points this week to 0.29%, which is at its lowest level since Nov. 2, when it was also 0.29%.
The weekly average yield to maturity of the Bond Buyer Municipal Bond Index, which is based on 40 long-term bond prices, increased two basis points this week to 5.03%.
This is the highest level for the weekly average yield since the week ended Sept. 8, when it was also 5.03%.
