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Muni Bond Indexes Fall Slightly Amid Market Doldrums

Even after a lackluster week, the municipal market appears to be heading into the Fourth of July holiday period on solid footing.

Bond Buyer Indexes

Muni yields have not budged since last Friday as three large deals of more than $1 billion made their way through the primary market. Traders said deals have been well-received, with yields on some falling several basis points in repricing.

Yields in the secondary, on moderate activity, have been mixed, showing signs of strength and weakness. Treasury yields have outperformed those of munis from the belly of the curve on out.

Muni indexes on the week are down slightly or unchanged. The Bond Buyer’s 20-bond index of 20-year general obligation yields was unchanged again this week at 3.95%. It remains at its highest level since April 12, when it was 3.97%.

The 11-bond index of higher-grade 20-year GO yields declined one basis point this week to 3.74%, which is the same level as two weeks ago.

The yield on the U.S. Treasury’s 10-year note declined three basis points this week to 1.59%. It is at its lowest level since May 31, when it was 1.58%.

The yield on the Treasury’s 30-year bond was unchanged this week at 2.68%, and is still at its lowest level since May 31, when it was 2.67%.

The market has been fairly quiet this week, said Howard Mackey, president of the broker-dealer division of Rice Financial Products. And next week promises worse.

“Right now, you’re looking at a summer doldrums effect; it’s coming early this summer,” he said. “A lot of trading desks are very hesitant to take on positions, because they don’t really want to go into next week with heavy positions. With the Fourth coming on a Wednesday, you have people taking off the entire week.”

Reception for the week’s new-issue slate was strong, wrote Alan Schankel, managing director at Janney Capital Markets, wrote in a research report. The New York Transportation Authority reportedly had orders for half of the $600 million of its $1 billion issue priced in a retail order period Wednesday.

The New York State Thruway Authority lowered yields up to six basis points from preliminary pricing on its $1.14 billion deal. The Long Island Power Authority lowered yields in most maturities on its $250 million pricing.

Since last Friday, muni triple-A yields held steady, according to Municipal Market Data numbers. The benchmark 10-year muni yield closed Thursday’s session at 1.86% for a 10th consecutive day. The two-year held at 0.32% for a 20th straight day. The 30-year yield remained at 3.16% for a fifth straight session.

The revenue bond index, which measures 30-year revenue bond yields, dropped three basis points this week to 4.69%. It is now at its lowest level since Oct. 28, 2010, when it was 4.67%.

Though investors are flush with cash from redemptions and coupon reinvestments, the low rates continue to give them pause, Mackey said.

“People are basically hesitant to commit significant amounts of money at these rates,” he said. “And they’re finding that whenever you have heavy supply, the market backs up to accommodate that supply. So, people feel that as the calendar grows, then rates will end up backing up. So, a lot of the money’s on the sidelines waiting for that eventuality.

The Bond Buyer’s one-year note index, which is based on one-year GO note yields, fell one basis point this week to 0.23%, which is its lowest level since April 18, when it was also 0.23%.

The weekly average yield to maturity of The Bond Buyer municipal bond index, which is based on 40 long-term bond prices, was unchanged this week at 4.39%. This is below the 4.41% average from two weeks ago, but still above the 4.38% average from three weeks ago.

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