The municipal market on Friday rallied slightly in light trading, as tax-exempts rose 1/8 point, lagging just behind a more impressive gain logged by the U.S. governments's 30-year bond, which rose in renewed fears of Soviet unrest.
Those traders who reported for work Friday said attention was focused on a second crest of supply in the final weeks of 1991, which promises to bring many issues to market. A similar crest appeared two weeks ago, when visible supply totaled $8.06 billion.
In secondary market activity late last week, one trader said that "a couple million" dollars worth of New Jersey Turnpike Authority bonds sold early Friday. "The rest of the market," he said, "is dead as a doornail."
Bonds from last month's $1.6 billion turnpike authority refunding traded up a quarter point from where they closed Wednesday. The authority's 6 1/2% bonds maturing in 2016 were quoted at 97 1/2-5/8, to yield 6.70%, compared with a 6.74% yield late Wednesday.
Another trader described the langorous, post-holiday municipal market as "feeling better" compared to Wednesday. "But I really haven't heard of too much trading," she said.
This week will revive the market, with underwriters readying the year's final barrage of bonds and trading desks back at full strength.
On Friday the 30-day visible supply of municipal bonds surged $2.97 billion to $5.89 billion. The total includes a $2.12 billion competitive slate and a $3.77 billion negotiated calendar.
"The key question," wrote managing director George D. Friedlander of Smith Barney, Harris Upham & Co. in a strategy piece published in the firm's Credit Market Comment, "is whether interest rates will have to move higher to facilitate a relatively heavy calendar that should persist through the third week in December."
Why the yearend rush to market? As one Chicago trader put it, "It's getting down to bonus crunch time." The yearend crunch, he said, comes from the desire of underwriters to close deals in time to brighten annual bonus pay prospects.
That newfound urgency, the trader said, could cost issuers from 10 to 25 basis points as heavy supply keeps debt investors in control of the market. Or, as Mr. Friedlander puts it, "The demand side will continue to predominate."
Much of the heavy supply of two weeks ago has apparently worked its way off dealers' shelves. On Friday, The Blue List of dealer inventory fell $66.2 million, to $1.67 billion, as the market continued to assimilate last month's bond infusion.
"The municipal bond market has handled a surprisingly heavy new-issue calendar this year without batting an eye," Mr. Friedlander wrote, estimating that total issuance through the end of the year will reach $160 billion.
Among widely traded dollar bonds, North Carolina Eastern 6 1/2S of 2017 were quoted at 96 1/2-97, to yield 6.79%. Washington Public Power Supply System 6 7/8S of 2017 were quoted at 98 7/8-99 1/4, to yield 6.96%.
In the debt futures market, the December municipal contract was quoted up 4/32, at 94 17/32 Friday afternoon.
In the short end of the municipal market, prices continued to improve and yields fell to 4.00%-3.95% on top-rated Los Angeles and Texas Trans, compared with 4.02%-4% Wednesday.
New York State Trans were quoted at 5.25%-5.20%, compared with yields of 5.30%-5.20% Wednesday. New York City notes garnered bids of 5.20% and were offered to yield 5.10%.
