SAN FRANCISCO - The Bond Buyer's weekly yield indexes surged this week, as the market continued to struggle against a wave of capital rushing to exit.

The 20-bond general obligation bond yield index rose 54 basis points this week, to 6.01%, which is the highest since May 25, 2000, when it was also 6.01%. The one-year note index rose 30 basis points, to 2.69%, which is the highest since Jan. 2, 2008, when it was 2.92%.

"There has been a significant reduction of capital allocated to the purchase of municipal bonds," said Chris Mier, a managing director and municipal strategist at Loop Capital Markets LLC in Chicago.

The 11-bond index of of high-quality GO muni paper rose 52 basis points, to 5.89%, which is the highest since May 25, 2000, when it was 5.95%.

The 54 basis-point increase in the 20-bond index and the 52 basis-point increase in the 11-bond index were the largest one-week increases for the two GO indexes since April 15, 1987, when both indexes rose 63 basis points.

The revenue bond index rose 51 basis points, to 6.48%, which is the highest since Feb. 2, 1995, when it was 6.63%. The 51 basis-point gain was the largest weekly increase since the week of Oct. 15, 1987, when it jumped 56 basis points.

The spike in yields can be traced to the unwinding of leverage. Leveraged traders like tender option bond programs borrowed in short-term, variable-rate markets to invest in longer dated maturities with higher yields. As their funding costs soared in the wake of Lehman Brothers Holdings Inc.'s bankruptcy last month, they began to unwind those carry trades.

"You've had a complete deleveraging," as TOB programs, proprietary trading desks, and bank dealers have pulled back from the market, Mier said.

While yields were higher across the fixed-rate maturities, the market was able to absorb a massive new money deal from California. The state sold $5 billion in revenue anticipation notes with almost 80% of it going to retail investors.

The state sold $1.2 billion maturing May 20, 2009 with a yield of 3.75% and $3.8 billion maturing June 22, 2009 with a yield of 4.25%.

The weekly average yield to maturity of The Bond Buyer municipal bond index rose 68 basis points this week, to 6.69%. This is the highest weekly average for the yield to maturity since the week ended Jan. 27, 1995, when it was 6.79%.

Treasury yields also rose this week through Thursday, as investors reversed some of the flight to safety that accompanied the acute financial market turmoil of recent weeks after governments worldwide pumped capital into their banks. In the U.S., many investors reallocated funds to the higher yielding financial company debts that are now seen as having the backing of the federal government.

The 10-year Treasury note yield rose 15 basis points, to 3.95%, which is the highest since July 31, 2008, when it was also 3.95%. The 30-year Treasury bond yield rose 13 basis points, to 4.24%, which is the highest since Sept. 25, 2008, when it was 4.40%.

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