Volatility in the municipal and Treasury markets has investors flummoxed at a time when an expected calendar-year record amount of issuance has flooded the primary. The Bond Buyer’s weekly yield indexes all fell, though not as far as those of Treasuries.
The Bond Buyer’s 20-bond GO index of 20-year general obligation yields declined 10 basis points this week to 4.02%. This is the lowest level for the index since Sept. 29, when it was 3.93%. The 11-bond GO index of higher-grade 20-year GO yields also dropped 10 basis points this week to 3.75%, which is its lowest level since Sept. 29, when it was 3.67%.
By comparison, the yield on the Treasury’s 10-year dropped 33 basis points this week to 2.07%. It stands at its lowest level since Oct. 6, when it was 1.99%.
The yield on the Treasury’s 30-year bond fell 35 basis points this week to 3.10%, which is the lowest it has been since Oct. 6, when it was 2.96%.
This week has mostly seen muni yields fall across the curve. And though nominal yields remain extremely low by any standard, the new issuance has been generally well-received by a hungry audience.
Prices are still cheap relative to Treasuries. And investors have reached a point where they feel compelled to invest money, said John Mousseau, a portfolio manager with Cumberland Advisors.
“We’ve been trading on nominal yields for a while; we’re apparently going to continue to trade on nominal yields for a while,” he said. “And because we’ve had a pretty good pipeline of deals this week, and probably the heaviest issuance week in quite a while, with a lot of names that are pretty good names, I think people were just ready to commit money.”
The financial crisis may be in the municipal market’s rearview mirror, but muni underwriters are still nervous about risking capital. When they price deals in the primary market, they’re doing so in a manner that won’t leave any unsold balances at the end of the day.
“The underwriters are still in the mode of not wanting to have a sloppy deal they have to take down,” Mousseau said. “The modus operandi is, we’ll price it cheap. If we have to price it cheaper, we will.”
The benchmark 10-year muni yield fell as much as 18 basis points during the week, before closing down 16 basis points by Thursday’s close. By comparison, the 10-year Treasury dropped by as much as 33 basis points during the week, before ending up down 24 basis points.
The revenue bond index, which measures 30-year revenue bond yields, fell five basis points this week to 5.05%. This is its lowest level since Oct. 6, when it was 5.04%.
The Bond Buyer’s one-year note index declined two basis points this week to 0.29%, its lowest level since Oct. 5, when it was also 0.29%.
The weekly average yield to maturity on The Bond Buyer’s 40-bond muni index, which is based on prices for 40 long-term municipal issues, was unchanged for a third straight week at 4.99%.