It was a quiet week for an otherwise indecisive municipal market.
Tax-exempt yields performed about as well as those of Treasuries. Investor demand for both rose and fell in modest swells throughout the week.
Several of the more prominent primary deals were pushed up a day for the institutional order periods early in the week.
By Wednesday, though, demand began to fade, driving yields higher on new issues.
Secondary activity on the week was mixed. News from the Federal Open Market Committee appeared to have little effect on Treasury or muni yields.
Municipal bond indexes on all but the short end reflected lower rates. The Bond Buyer’s 20-bond index of 20-year general obligation yields declined four basis points this week to 3.86%. It is at its lowest level since March 8, when it was 3.84%.
The 11-bond index of higher-grade 20-year GO yields also dropped four basis points this week to 3.65%. That is its lowest level since March 1, when it was 3.47%.
The yield on the Treasury’s 10-year note was unchanged this week at 1.96%. It remains at its lowest level since Feb. 2, when it was 1.83%.
The yield on the Treasury’s 30-year bond gained one basis point this week to 3.13%, but remained below its 3.22% level from two weeks ago.
Technicals, much as they have throughout 2012, continued to drive munis this week, according to John Loffredo, co-portfolio manager for the MainStay High Yield Municipal Bond Fund and senior managing director at MacKay Shields LLC, a wholly owned subsidiary of New York Life Investments.
For the general market, he said, there’s so much cash on the sidelines that needs to be put to work and so little supply to meet it.
“The technicals are still stronger,” Loffredo said. “We’re still a little de-coupled from the Treasury market. But the higher-grade part of our market, the triple-A part of the curve, has a higher correlation” with Treasuries.
Since last Friday, muni yields were flat to slightly firmer across the curve. The benchmark 10-year triple-A inched down one basis point to 1.87%, according to Municipal Market Data numbers.
The two-year muni yield ended the period flat at 0.31%, while the 30-year muni yield dropped three basis points to 3.25%.
On certain parts of the curve, nominal yields have hovered at levels that are almost prohibitive for many investors, Loffredo said. Heading down the curve — from one to 10 years — rates have gotten low enough to force many from the market.
For longer-term maturities, however, rates remain attractive, he added. “And credit spreads continue to narrow,” Loffredo said. “For the most part, investors are still feeling comfortable with the municipal market.”
The revenue bond index, which measures 30-year revenue bond yields, fell three basis points this week to 4.78%. It rests at its lowest level since March 8, when it was 4.76%.
The Bond Buyer’s one-year note index, which is based on one-year GO note yields, increased three basis points this week to 0.26%. This represents its highest level since Jan. 4, when it was 0.28%.
The weekly average yield to maturity of The Bond Buyer municipal bond index, which is based on 40 long-term bond prices, declined three basis points this week to 4.53%.
It is the lowest weekly average for the yield to maturity since the week ended March 8, 2007, when it was 4.52%.
