The Bond Buyer's weekly yield indexes fell sharply this week - the one-year note index hit a record low - as yields dropped in every session.
Munis entered today's trading session much firmer in price than they were a week ago, causing some traders to wonder how long the rally could maintain such momentum.
Matt Fabian, managing director at Municipal Market Advisors, said the "bid at year end, which people used for window dressing for year-end marks, had made the market very aggressive to begin the year."
"So all the strength we've had since Jan. 1, while it's been strong, it's been really exaggerated by that year-end window dressing," he said.
However, Fabian said that the strength seen in the market goes beyond that.
"The expectation of benefit from the muni stimulus package has been driving the extraordinary demand for bonds, and helping bring them to record low yields," he said.
Over a longer term, Fabian said, "the most common talk in the market seems to be that yields are going to stabilize."
"I think there's clearly a bubble in the pricing of high-grade bonds," Fabian said. "Either the bubble will stay around for a while, or it will pop. And you're looking for potential pricks to the bubble. One of those pricks might be that the stimulus package isn't as much of a benefit as people had hoped. Or, there could be an emergence of selling, more institutional selling and gains-taking. But there's no obvious prick to the bubble. The strength has been so extraordinary though that the downside is limited. This may be a longer-term strength for bonds in the yield curve."
The Bond Buyer 20-bond index of 20-year general obligation bond yields declined 22 basis points this week to 4.80%. That is the lowest the index has been since Sept. 11, 2008, when it was 4.54%. The 20-bond GO index has now declined five consecutive weeks, falling 105 basis points from 5.85% on Dec. 11, 2008.
The 11-bond index of higher-grade 20-year GO yields declined 21 basis points this week to 4.59%, which is the lowest the index has been since Sept. 11, 2008, when it was 4.45%. The 11-bond GO index has also declined for five weeks in a row, falling 106 basis points from 5.65% on Dec. 11, 2008.
The revenue bond index, which measures 30-year revenue bond yields, declined 18 basis points this week to 5.72%, which is the lowest level for the index since Oct. 2, 2008, when it was 5.69%.
The 10-year Treasury note yield dropped 24 basis points to 2.20%, which is the lowest since Dec. 23, 2008, when it was 2.15%.
The 30-year Treasury bond yield dropped 17 basis points this week to 2.86%, but it remained above its level from two weeks ago, when it was 2.68%.
The one-year note index, which measures the average yield of one-year municipal notes, declined 36 basis points this week to an all-time low of 0.73%. The previous low for the index had been 0.83% on June 18, 2003. The index began on July 12, 1989.
The weekly average yield to maturity on The Bond Buyer 40-bond municipal bond index finished at 5.70%, down 20 basis points from last week's 5.90%.
