Municipal bonds have notched a good week as governments’ willingness to refrain from borrowing means investors with money to spend mostly have to chase existing bonds in the secondary market.
The Bond Buyer 20-bond index of 20-year general obligation yields declined five basis points this week to 4.90%. That’s the lowest level for the index since Dec. 9, 2010.
Considering this came during a week when Treasury yields drifted up, the market can mainly thank the paltry new supply of municipal bonds. State and local governments were scheduled to sell less than $2 billion of bonds this week after floating the smallest two-month amount since 2000 to start the year.
“We’ve been supported by the lack of significant supply,” said Evan Rourke, a portfolio manager at Eaton Vance. “You’ve had relatively steady demand — I won’t say overwhelming demand. ... We’ve had very, very low supply.”
The 11-bond GO index of higher-grade 20-year GO yields dropped seven basis points this week to 4.63%.
The revenue bond index, which measures 30-year revenue bond yields, fell one basis point this week to 5.56%, when it was 5.44%.
The yield on the 10-year Treasury increased 12 basis points this week to 3.57%, but it remained below its 4.60% level from two weeks ago. The yield on the Treasury’s 30-year bond rose 10 basis points to 4.64%.
The divergence in yields means ratios on municipal bonds are no longer as attractive, at least at the intermediate part of the yield curve. The ratio of the 10-year triple-A yield to the 10-year Treasury yield is now 84%, down from more than 100% in January.
The 30-year triple-A yield is at 103% of the 30-year Treasury, which is still fairly high by historical standards but down from the near-term peak of 112% last month.
The Bond Buyer one-year note index was unchanged this week at 0.51%.
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, was unchanged this week at 5.61%.