Muni Indexes Mostly Rise on Sluggish Week

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The municipal market got off to a slow start this week amid the summer doldrums and failed to gain any momentum.

But though muni yields underperformed those of Treasuries, they only weakened by an incremental factor in the belly of the curve. They remain near record lows across the curve.

Primary market deals on the week saw bumps and cuts in equal measure. The secondary market has also been mixed, traders said.

Muni indexes were higher on the week beyond the short end of the curve, which reached its lowest point in the 23 years it has been tracked.

The Bond Buyer's 20-bond index of 20-year general obligation yields increased five basis points this week to 3.66%. It remained below its 3.75% level from two weeks ago.

The 11-bond index of higher-grade 20-year GO yields gained four basis points this week to 3.45% but remained below its 3.54% level from two weeks ago.

The yield on the U.S. Treasury's 10-year note gained five basis points this week to 1.48%, but remained below its 1.52% level from two weeks ago.

The yield on the Treasury's 30-year bond rose six basis points this week to 2.55%. It remained below its 2.61% level from two weeks ago.

Primary muni volume is expected to total a modest $5.62 billion this week. The lower supply affected muni pricing, said Richard Ciccarone, managing director and chief research officer at McDonnell Investment Management.

"It helped to support the low yields that we've been seeing this year," he said.

Muni yields were mostly flat on the week since Friday, according to Municipal Market Data numbers. The benchmark 10-year triple-A yield dropped two basis points on the week from Friday, to a still canyon-deep 1.66%. The two-year and 30-year yields held at 0.29% and 2.84%, respectively.

The low yields continue to present issues for investors, Ciccarone said.

"The problem is, the absolute low yields are enough to make anyone pause," he said. "How do you, as a professional, get comfortable with low yields like that? It's certainly not, by itself, a buying opportunity, based on recent historical standards."

Still, munis remain appealing when compared to their fixed-income brethren, Ciccarone said.

"To some extent, on a relative basis, we're still attractive not only to Treasuries but to corporates, as well, pretty much across the yield curve," he said.

Since Friday, muni ratios to Treasuries have gotten richer, MMD numbers showed. The 10-year rose six percentage points on the week to 112%.

The two-year climbed more than four percentage points to 121% over the same period and the 30-year has ticked up three percentage points since last Friday, to 111%.

The revenue bond index, which measures 30-year revenue bond yields, rose two basis points this week to 4.46%. It is still below its 4.51% level from two weeks ago.

The Bond Buyer's one-year note index, which is based on one-year GO note yields, declined two basis points this week to an all-time low of 0.21%. The previous record low of 0.22% was set on March 14, and matched on July 11. The index began July 12, 1989.

The weekly average yield to maturity of The Bond Buyer municipal bond index, which is based on 40 long-term bond prices, was unchanged at 4.24% for the week ending today, remaining at its all-time low for a second consecutive week.

The Bond Buyer began calculating the average yield to maturity on Jan. 2, 1985.

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