In the face of a great deal of supply, the bond markets performed admirably this week. This is especially true of the municipal market, which saw a sizeable calendar of both high grade and revenue issues gobbled up by the voracious appetites of individual buyers.
Perhaps the April 15 deadline made many taxpayers realize what they were missing by not sheltering their incomes through the purchases of tax-exempt securities.
The large $15 billion Treasury refunding was announced Wednesday evening. Although the total package of three issues was larger than anticipated, the market blinked and continued to move forward on Thursday. The sentiment among market professionals seems to be that interest rates will be lowering over the next several months.
Peter Gordon, who manages the tax exempt funds at Rowe Price in Baltimore, feels that "the market is poised for another major move toward lower yields."
Gordon feels that this will occur because not only are there lower inflationary expectations, but the fact that the actual inflationary numbers are considerably lower than many had expected.
To this line of reasoning may also be added the modest recovery as well as the negligible demand for short-term funds by corporations. It is further anticipated that the growth in the monetary aggregates will continue to slow, which will negate the need for the Fed to tighten credit.
With these thoughts in mind, what should a bond investor do?
If you are a buyer of tax-exempt securities, 10-year maturities are still attractive. A double A-rated, 10-year, general obligation bond will return a tax-exempt yield of 8 percent. For a person in the 50 percent tax bracket the taxable equivalent is 16 percent.
If you can afford the market risk of a longer maturity, a 30-year, A-rated revenue bond will return 9.25 percent, or a taxable equivalent of 18.50 percent for a person in the 50 percent bracket.
On Tuesday, $1.9 billion worth of government backed (HUD) tax exempt short-termed project notes will be sold. They will mature monthly from September of 1983 to June 1984. They should return between 4 3/4 percent and 5 1/4 percent.
For those individuals who want the ultimate in safety, and taxable income as well, the Treasury will offer three issues this week.
On Tuesday, a three-year note, on Wednesday a 10-year note, and on Thursday the 29 1/2-year, 10 3/8 percent bond will be reopened to bidders. The three year will come in minimum denominations of $5,000, while the two longer issues will be available in minimums of $1,000.
Investors may subscribe to these three issues by going to the U.S. Treasury in Washington, D.C., or to any of the Federal Reserve banks or their branches prior to 1:30 p.m. on the day of each sale. Small investors should enter noncompetitive bids for the best result. The returns should be 9.4 percent, 10.15 percent and 10.35 percent respectively.