The Bond Buyer's weekly yield indexes plummeted this week, after a sizeable rally Tuesday led to a historic one Wednesday, and the market then held firm yesterday.
After a quiet start, with tax-exempt yields flat to up two basis points Friday and then largely unchanged Monday, buyers returned to the muni market in droves Tuesday, pushing yields lower by at least five basis points, and as much as 10 in spots.
However, that was just a harbinger of what was to come Wednesday, when municipals experienced a staggering rally that saw The Bond Buyer's 40-bond index post the largest gains since it began in 1984. Traders said tax-exempt yields plunged 15 to 20 basis points on average, with munis firming as much as 25 basis points on the long end, as demand for munis was enormous.
And the positive tone held strong yesterday, as munis gained another eight to 10 basis points in an active market.
"I guess a lot of people have started to realize that munis are very cheap in here," said Howard Mackey, president of the broker-dealer business unit of Rice Financial Products. "You had retail supporting this market for the past few weeks, and they've come in at very cheap levels, and basically dominated most of what we saw in the primary market. Frankly, they've also been somewhat active in the secondary.
"What was happened at this point is you have now gotten some institutions and some crossover buyers into the market, and they have recognized that these absolute yields in the muni market are very attractive, and they've stepped up," Mackey added.
The 20-bond GO index declined 69 basis points this week to 5.32% from 6.01%. This is the lowest the index has been since Sept. 25, when it was 5.23%.
The 69-basis-point decline was the largest one-week drop for the 20-bond index since Oct. 7, 1982, when it fell 73 basis points to 9.75% from 10.48%. The most it has ever dropped in one week was 118 basis points on April 17, 1980, to 7.89% from 9.07%.
The 11-bond GO index declined 68 basis points this week to 5.21% from 5.89%. This is the lowest the index has been since Sept. 25, when it was 5.14%.
The 68-basis-point decline was the largest one-week drop for the 11-bond index since Oct. 7, 1982, when it fell 96 basis points, to 9.18% from 10.14%. The most it has ever dropped in one week was 129 basis points on April 17, 1980, to 7.32% from 8.61%.
The revenue bond index declined 42 basis points this week to 6.06% from 6.48%. It remained above its level from two weeks ago, when it was 5.97%.
The 42-basis-point decline was the largest one-week drop for the revenue bond index since Nov. 5, 1987, when it fell 50 basis points to 8.28% from 8.78%. The most it has ever dropped in one week was 88 basis points, on Nov. 12, 1981, to 12.66% from 13.54%.
The 10-year Treasury note yield fell 35 basis points this week to 3.60% from 3.95%. The 35-basis-point decline was the largest one-week drop for the Treasury note yield since May 19, 1994, when it fell 40 basis points to 6.94% from 7.34%. The most it has ever dropped in one week since The Bond Buyer began tracking it in June 1987 was 131 basis points, on Oct. 22, 1987, to 8.92% from 10.23%.
The 30-year Treasury bond yield fell 25 basis points this week to 3.99% from 4.24%. This is the lowest yield for the Treasury bond since The Bond Buyer began tracking its yields on Thursday in September 1979.
The one-year note index fell 38 basis points this week to 2.31% from 2.69%. It is now at its lowest level since Sept. 24, when it was 2.19%. The 38-basis-point decline was the largest since Feb. 6, when it fell 62 basis points, to 1.27% from 1.89%.
The weekly average yield to maturity on The Bond Buyer 40-bond municipal bond index finished at 6.35%, down 34 basis points from last week's 6.69%.
