The Bond Buyer’s weekly yield indexes outperformed Treasuries during a week that saw middling investor interest in the primary market and a dramatic sell-off in Treasuries during the latter half of the week.
While Treasury bond yields saws jumps of more than 25 basis points from Tuesday through Thursday from 10 years and 30 years, those for munis were far more modest.
The Bond Buyer’s 20-bond GO index of 20-year general obligation yields increased four basis points this week to 4.12%, but it remained below its 4.17% level from two weeks ago.
The 11-bond GO index of higher-grade 20-year GO yields also rose four basis points this week, to 3.85%. It remained below its 3.91% level from two weeks ago.
By comparison, the yield on the Treasury’s 10-year increased 22 basis points this week, to 2.40%. It sits at its highest level since Aug. 4, when it was 2.44%.
The yield on the Treasury’s 30-year bond rose 26 basis points this week, to 3.45%. That represents the highest it’s been since Sept. 1, when it was 3.51%.
Muni bond investors have had an overwhelming need to put cash to work. And that, more than relatively attractive yields and ratios, drove demand in new issuance this week, industry pros say.
Yields on the triple-A muni curve by midweek had fallen modestly in the 10-year range. The market absorbed much of the week’s new issuance. Demand overall has been strong at current yields, said Michael Pietronico, chief executive officer at Miller Tabak Asset Management.
“The Street might have gotten too bearish a few weeks ago, regarding whether the calendar would overwhelm the market,” he said. “It seems the calendar is certainly manageable at current levels. … Certainly the negotiated deals, if priced attractively, have been able to be put away.”
But as European governments reached a deal by midweek to contain the region’s debt crisis, investor interest in risk reignited. That led to sell-offs in both Treasuries and tax-exempts Thursday. Muni yields subsequently rose across the curve, experiencing the greatest lift from the belly on out.
The equities market had a strong session, benefiting from investors’ call for more risk. The major indexes all rose by at least 2.86% on the day.
Muni-Treasury ratios in the two-year, 10-year and 30-year ranges are all attractive and remain north of 100% — but they are falling. By Thursday, they stood at 144%, 103% and 111%, respectively. Regardless, they’re not the engine behind the market’s demand for new issuance, Pietronico said.
“When we saw the correction in yields a few weeks ago we were acting on the absolute yields moving higher,” he said. “And we were able to buy a fair amount of 4% yields inside of 15 years on some fairly decent credits. From that perspective, the ratios didn’t matter; the absolute yields did. I’m not so sure that ratios are driving the market here so much as the need to put cash to work.”
The revenue bond index, which measures 30-year revenue bond yields, gained three basis points this week, to 5.10% — its highest level since Sept. 15, when it was 5.11%.
The Bond Buyer’s one-year note index increased one basis point this week, to 0.31%. That’s the same level it reached two weeks ago.
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 this week at 4.99%.