The municipal bond market gained strength as the week progressed, supported by the debt ceiling resolution and Puerto Rico’s investor call Tuesday, which helped calm concerns about the ability of the territory’s issuers to pay their obligations.

Video-Muni Week in Review: October 18, 2013

By the end of the week, the market recouped much of its losses from earlier sessions, with the 10-year Municipal Market Data scale rising two basis points for the week through Thursday to 2.62% and the 30-year yield increasing four basis points to 4.22%.

Yields on the 10-year Municipal Market Advisors scale rose one basis point for the week to 2.76% and the 30-year yield increased two basis points to 4.35%.

“You might characterize this week as having been somewhat paralyzed by the negotiations in Washington,” said Jim Colby, portfolio manager and senior municipal strategist at Van Eck Global. “Given the backdrop of legislative inaction and the talk of the U.S. potentially defaulting on its obligations, traders didn’t know what to do. The performance of the market was pretty good given everything that happened.”

The Puerto Rico call with investors Tuesday, in which commonwealth officials called bankruptcy for its agencies “completely out of the question,” also helped to calm fears. “The Puerto Rico call suggesting they may not do any more public financings through year-end gave the market an opportunity to catch its breath and move away from the notion of 'sell at any cost’,” Colby said.

On Thursday, analysts at Interactive Data said yields were lower on Puerto Rico bonds by 20 basis points. “The commonwealth’s GO bond yields reached multi-week lows after officials indicated that they may not sell additional GO debt until the middle of next year,” the analysts wrote.

Limited supply this week also provided support. “Supply was suitably modest,” Colby said. “The calendar is building slightly week over week through the next 30 days but now that we have some relief from the concern about the near-term calamity in Puerto Rico and concerns about what the government will do about the deficit, we have a chance to go about our business in a more normalized fashion.”

On Tuesday, JPMorgan priced $955.9 million of Dormitory Authority of the State of New York sales tax revenue bonds, rated AAA by Standard & Poor’s and AA by Fitch Ratings. By mid-morning, retail investors had placed $400 million of orders, allowing the issuer to accelerate institutional pricing. Yields were lowered between one and three basis points on bonds maturing between 2016 and 2021 from retail pricing but raised one to five basis points on bonds maturing from 2033 and 2038.

Citi priced for retail and institutions $360.1 million of triple-A Battery Park City Authority senior revenue bonds and was able to lower yields as much as seven basis points on bonds maturing between 2015 and 2024.

For the week, the 20-Bond GO Index of 20-year general obligation yields increased 11 basis points this week, to 4.68%. The index is at its highest level since Sept. 12, 2013, when it was 4.93%.

The 11-Bond GO Index of higher-grade 20-year GO yields gained nine basis points this week, to 4.37%, which is its highest level since Sept. 19, 2013, when it was 4.39%.

The Bond Buyer’s Revenue Bond Index, which measures 30-year revenue bond yields, rose two basis points this week, to 5.25%. This is the highest the index has been since Sept. 12, 2013, when it was 5.31%.

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