Muni Yields Fall With Treasury Rates

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Nearly all of The Bond Buyer’s weekly yield indexes declined this week, as the municipal market followed Treasuries and grew firmer by several basis points in each session.

Bond Buyer Indexes

“You have problems in Europe, and Italy can’t issue long-term debt below 7%, which is a negative,” said Howard Mackey, president of the broker-dealer division at Rice Financial. “It’s very clear the European Union participants aren’t willing to extend needed financing for weaker participating nations.”

“The result is a flight to quality which affects U.S. Treasuries,” Mackey said, and then trickles down to munis.

“We got some follow-through in munis, particularly on the high grade,” Mackey said, adding the 10-year muni-to-Treasury ratio is about 99% right now. “Even though it was a high of 110% and 115% a few weeks ago, at these levels, tax-exempts are still attractive.”

Though issuance was light in the tax-exempt market this week, a surprise competitive deal of almost $300 million of Municipal Electric Authority of Georgia revenue bonds, bought by Bank of America Merrill Lynch, was added to the calendar Wednesday.

The first series consists of $100.73 million of taxable power revenue bonds. The second series consists of $57.98 million of taxable general power revenue bonds. Both series have yields ranging from 1.58% priced at par in 2013 to 4.98% priced at par in 2028.

The third series consists of $59.53 of taxable project one subordinated bonds. The bonds were priced at par to yield 4.03% in 2020 and 4.43% in 2022.

The fourth series consists of $81.24 million of general resolution projects subordinated bonds. Yields ranged from a 3.52% coupon priced at par in 2018 to a 4.43% coupon priced at par in 2022.

The Bond Buyer’s 20-bond general obligation index of 20-year GO yields declined four basis points this week to 3.88%. This is its lowest level since Sept. 22, 2011, when it was 3.85%.

The 11-bond GO index of higher-grade 20-year GO yields also dropped four basis points this week, to 3.62%, which is its lowest level since Sept. 22, 2011, when it was 3.58%.

The revenue bond index, which measures 30-year revenue bond yields, also fell four basis points this week, to 4.97%. It is now at its lowest level since Sept. 22, 2011, when it was 4.96%.

The Bond Buyer’s one-year note index was unchanged this week, remaining at its all-time low of 0.27%. The index began on July 12, 1989.

The yield on the U.S. Treasury’s 10-year note declined six basis points this week to 1.90%. It is now at its lowest level since Sept. 22, 2011, when it was 1.71%.

The yield on the Treasury’s 30-year bond dropped nine basis points this week to 2.90%, which is its lowest level since Sept. 22, 2011, when it was 2.79%.

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 4.87%, down two basis points from last week’s 4.89%.

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