Municipal bond index yields fell modestly over the week. Rates measured by the one-year note, as well as 11- and 20-year bond indexes slipped by up to two basis points.
Muni bond indexes have been reacting to an upsurge in new issuance. About $4.68 billion is expected to reach the market this week, according to Ipreo LLC, compared with $3.38 billion last week.
The higher volume is average by historical standards but represents a significant bump in supply when juxtaposed to the slight issuance witnessed throughout the year. The new volume has seen strong pricing as investors have been flush with cash so far this month.
Principal and interest payments from outstanding bonds have flooded back into the market seeking safe spots for reinvestment, according to Howard Mackey, president of the broker-dealer unit of Rice Financial Products.
“With coupon payments being very large in the month of June, there is a lot of cash available to be put to work in the tax-exempt market,” he said. “So it’s easy to absorb these somewhat minor increases in our calendar.”
Munis rallied last Friday on stronger Treasuries. On Monday and Tuesday, municipals mostly weakened across the curve as Treasuries drifted. But tax-exempts firmed across the curve on Wednesday following a strong rally in Treasuries.
Some in the industry expect muni index yields to tick upward in the coming days.
“Right now, the [municipal] market’s had to digest the very strong run-up we’ve seen over the past few weeks,” Mackey said. “At this point, we’ve had a drifting of where rates are.”
The market will trade in a narrow range for the next couple of days, and slip by “maybe a basis point here and there,” Mackey said. As muni indexes have historically lagged the market a bit, they will eventually follow.
The Bond Buyer’s 20-bond index of 20-year GO yields fell two basis points this week to 4.49%. The number stands as the lowest seen in a 30 weeks, when it registered 4.24%.
The 11-bond GO index of higher-grade 20-year GO yields fell two basis points this week as well, to 4.23%. That is also a 30-week low — it was 3.98% on Nov. 10 of last year.
The revenue bond index, which measures 30-year revenue bond yields, rose one basis point this week to 5.34%.
The Bond Buyer’s one-year note index fell one basis point this week to 0.39%. Two weeks ago, the index — which began in July 1989 — reached a record low of 0.38% two weeks ago.
The yield on the Treasury’s 10-year note fell three basis points this week to 3.00%. The yield on the 30-year Treasury bond fell two basis points this week to 4.23%.
The average weekly yield to maturity of The Bond Buyer municipal bond index, which is based on 40 long-term bond prices, fell five basis points to 5.27%, a 27-week low.
