Muni Yields Firm Up on Intermediate and Long End

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Reinvestment cash jolted the municipal bond market into life this past week.

Muni yields at the intermediate and long end responded to investors’ need to put money to work by firming at a healthy pace as buyers took what little new issuance and high-grade paper they could find.

The triple-A 10-year yield fell 21 basis points on the week, according to the Municipal Market Data scale, landing at a calendar-year low of 1.97%. For the week, the 30-year muni yield dropped 14 basis points.

Muni bond indexes, by comparison, fell dramatically, as well. The Bond Buyer’s 20-Bond GO Index of 20-year general obligation yields declined 19 basis points this week to 3.93%. This represents its lowest level since Sept. 29, when it was also 3.93%.

The 11-Bond GO Index of higher-grade 20-year GO yields dropped 18 basis points this week to 3.67%, its lowest level since Sept. 29, when it was also 3.67%.

The yield on the U.S. Treasury’s 10-year note declined 13 basis points this week to 1.98%. But it remains above its 1.94% level from two weeks ago. The yield on the Treasury’s 30-year bond dropped 12 basis points this week to 3.00%, but is still higher than its 2.91% level from two weeks ago.

Primary market volume for the week, meanwhile, remained somewhat elevated by 2011 standards. It is expected to fall just below the $6 billion range this week, according to industry estimates, roughly where it landed last week.

And investors snatched much of the week’s new supply to stock their shelves in anticipation of a winter drought, leaving little left over. The need to put to work reinvestment money from coupon payments and maturing debt coming due in December and January certainly played a role in the market’s firm tone, said Howard Mackey, president of the broker-dealer unit of Rice Financial Products.

“I think the anticipation of coupon payments and maturities in existing issues is going to have some effect,” he said. “So, when you have situations that settle here during the month, that’s going to be of some interest and will have some effect on demand.”

The Revenue Bond Index, which measures 30-year revenue bond yields, fell six basis points this week to 5.03%. It sits at its lowest level since Nov. 10, when it was 5.00%. The Bond Buyer’s One-Year Note Index was unchanged this week at 0.29%. It remains 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, [TKTKincreased two basis points this week to 5.03%]. This is the highest level for the weekly average yield since [TKTKthe week ended Sept. 8, when it was also 5.03%].

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