The U.S. financial markets continued to improve in the third quarter of 2009. The economy recorded quarterly growth of 3.5 percent in gross domestic product (GDP). This confirms the generally held belief that the economy has begun to grow, although the preliminary figure is subject to revision and dominated by the impact of the fiscal stimulus package on the auto and housing sectors.
Treasury yields declined throughout the quarter, which was partially due to the Federal Reserve’s purchasing of treasury securities. The yield ratio of AAA-rated 10-year municipal bonds to that of comparable 10-year Treasury securities continued to narrow in the third quarter of 2009, ending
September at 89 percent, below the previous quarter’s level of 95 percent and well below the 174 percent recorded at the height of the credit crisis a year ago. Municipal bond yields are at historically low rates, with AAA-rated municipal bond yields ending 3Q’09 at 2.96 percent, down from 3.37 percent at the end of the second quarter and 4.16 percent at the end of the same year-earlier period. Municipal yields of lower rated bonds declined as well in the third quarter relative to the previous quarter. The SIFMA Municipal Swap Index, a short term yield of tax-exempt variable rate demand obligations, rose slightly to 0.34 percent at end-September from 0.30 percent at end-June, bringing the 52-week average to 0.66 percent.

Credits

SIFMA Research

• Managing Director, Director of Research: Kyle Brandon
• Research Analyst: Paul Rainy

Municipal Division

• Managing Director, Assistant General Counsel, Co-Head: Leslie Norwood
• Managing Director, Co-Head: Michael Decker
• Managing Director, Associate General Counsel: Leon J. Bijou