Most of The Bond Buyer's weekly yield indexes declined this week, as tax-exempt yields declined slightly in most of the week's sessions.

Activity was light for much of the week, ahead of Wednesday's monetary policy decision from the Federal Reserve, which saw the federal funds target rate lowered by 25 basis points to 2%.

"Generally, we didn't see a lot of activity before the decision, in anticipation of it," said Howard Mackey, president of the broker-dealer business unit of Rice Financial Products. "As a result, it was fairly quiet generally in the fixed-income arena, and we saw after the number came out that the market did improve slightly."

Munis were mostly unchanged Friday, with slight weakness on the long end, heading into the weekend.

Tax-exempts were then largely unchanged Monday, but firmed Tuesday by one or two basis points in modest activity, as many in the cash market stayed on the sidelines ahead of the Federal Reserve's decision on interest rates Wednesday.

The municipal market was then unchanged to slightly firmer Wednesday, as the Federal Open Market Committee lowered the federal funds rate target 25 basis points to 2%.

"It was widely anticipated that fed funds would decline by about a quarter of a point during the meeting, which is what happened," Mackey said. "The problem is there is some concern on the part of a lot of economists that the Fed has gone too far with the rate cuts, and that it has contributed to the inflation problem."

"There is a school of thought that says we should not have reduced rates this last time, that we should have maintained rates," he said. "Basically that a policy should have been set to say that, at this point, it's more important that we do keep inflation intact, and that maybe we find other methods for stimulating lending on the part of the financial community to support the housing market."

However, Mackey feels that the FOMC is now finished with its rate cuts.

"Right now, we're looking at a situation where the Fed has done probably all they can do in terms of providing liquidity into the system," he said. "We're now in a position where bonds don't have any place to go, there's no more good news on the horizon, news that would signal further rate cuts, so it's very hard, in my opinion, to see why rates would continue to decline."

Then yesterday, tax-exempt yields were again unchanged to slightly firmer, with yields dipping as much as two basis points in some spots. Many participants remained on the sidelines prior to the April employment report, which is due out today.

Mackey, however, said that much of the predicted 75,000 decline in jobs is already factored into the market.

"Unless we see numbers that are quite a bit larger than that, in terms of a decline, you're not going to have information that is going to impact the markets," he said. "My own feeling is that a 75,000 jobs decline is not going to be enough to stimulate upward price movement in Treasuries or munis."

The Bond Buyer 20-bond index of GO yields fell five basis points this week to 4.63%, but it remained above the 4.62% level from two weeks ago.

The 11-bond index fell three basis points this week to 4.56%, but remained above its 4.53% level from two weeks ago.

The revenue bond index fell three basis points to 5.07%, but was still above its 5.06% level from two weeks ago.

The 10-year Treasury note yield fell nine basis points to 3.75%, but it remained above its 3.72% level from two weeks prior.

The 30-year Treasury bond yield fell seven basis points to 4.49%, which is its lowest level since 4.32% on April 10.

The Bond Buyer one-year note index, however, rose 23 basis points to 1.92%, which is the highest it has been since March 12, when it was 2.07%.

The weekly average yield to maturity on The Bond Buyer 40-bond municipal bond index finished at 5.01%, up two basis points from last week's 4.99%.

 

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