The Bond Buyer’s long-term weekly yield indexes rose this week as media reports about the possibility of a string of municipal bankruptcies weighed on investors.
“Municipals have succumbed to headline risk, and it seems as if retail is taking their ball and going home,” said Michael Pietronico, chief executive officer at Miller Tabak Asset Management.
“Mutual funds are the dominant players right now, unloading bonds at a rapid pace. There is scattered interest, but structurally, the muni market will have difficulty absorbing large blocks, without an institutional presence on a day-to-day basis.”
Pietronico said this week’s losses call into question the market’s ability to take on a heavier new-issue calendar.
Amid the rising rates and market uncertainty, Bank of America Merrill Lynch priced $967.7 billion of school construction bonds for the New Jersey Economic Development Authority Thursday in a deal downsized from an originally scheduled $1.9 billion. Yields were raised about 18 basis points from retail levels to complete the issuance.
“That deal shows that even a reasonably good credit is having a hard time,” Pietronico said. “With BABs gone, the long end has basically lost its training wheels, and now it has to learn how to ride a bike all over again. That means higher yields.”
The Bond Buyer 20-bond index of 20-year general obligation yields rose 31 basis points this week to 5.39%. This is the highest level for the index since Dec. 18, 2008, when it was 5.46%.
The 11-bond GO index of higher-grade 20-year GO yields increased 30 basis points this week to 5.14%, which is its highest level since Dec. 18, 2008, when it was 5.25%.
The revenue bond index, which measures 30-year revenue bond yields, gained 16 basis points this week to 5.60%. This is its highest level since Aug. 20, 2009, when it was 5.62%.
The Bond Buyer one-year note index, which is based on one-year tax-exempt note yields, declined two basis points this week to 0.55%, but remained above its 0.53% level from two weeks ago.
The yield on the 10-year Treasury note dropped 11 basis points this week to 3.31%, which is its lowest level since Dec. 9, 2010, when it was 3.22%.
The yield on the 30-year Treasury bond fell four basis points this week to 4.50%, but remained above its 4.41% level from two weeks ago.
The weekly average yield to maturity on The Bond Buyer’s 40-bond municipal bond index, which is based on 40 long-term municipal bond prices finished at 5.70%, up 16 basis points from last week’s 5.54%.