Prices were unchanged and the tone was uncertain yesterday as the markets waits or $11.6 billion of scheduled new deals this week.
Record supply has held the market at bay for the last two weeks. Bond prices steadily declined and deals were postponed as yields rose.
The market showed some signs of recovery Friday, thanks to the reduced new-issue calendars and favorable economic news. But the Street has only a short time to take a breath before the next wave of new deals washes over the primary sector.
The bulk of this week's new-issue supply is expected to be priced tomorrow and Thursday, although several sizable deals are expected to be sold today.
An issue of $450 million of Illinois Highway Authority bonds and $246 million of Denver Airport bonds are expected to be priced today.
Some market sources said they expected $700 million of Washington Public Power Supply System bonds to also hit the primary sector.
Last week, results of new deals were mixed as reluctant buyers demanded more yield from the Street.
Until the standoff between the Street and buyers is resolved, prices are likely to remain in a narrow range and several traders argued that buyers are in a better position to win the waiting game.
"We might be able to entice some crossover buyers, but right here it probably pays to wait," a trader said. "If you're a buyer you're betting it's going to have to cheapen up."
Tax-exempts will need a stronger Treasury market to lead it through the primary sector, traders say, and, so far, governments have cooperated.
"The key is the Treasury market," a trader acknowledged. "We've seen some strength there and that has helped the tone in municipals. But it's going to have hit a higher price range in order to really give us a boost."
Treasury prices were 1/4 point higher yesterday as traders priced in a Fed ease that they think will take place after the release of September employment data on Friday.
But traders note that if the market moves higher in price and yields are reduced, more issuers are likely to enter the market and supply pressure will increase.
"It's a real Catch-22 situation," a trader said. "When the deals are postponed the market does a little better, and when the issuers return people step back. Everybody is wondering what will break the cycle besides a Treasury rally."
Yesterday's Market
The short-term note market continued to outperform bonds yesterday, as yields dropped five to 10 basis points on the day. Note yields have dropped between 20 and 30 basis points over the last six trading days.
In late action yesterday, Los Angeles tax and revenue anticipation notes were quoted at 2.85% bid, 2.80% offered; Texas Trans were quoted at 2.90% bid, 2,85% offered; and Wisconsin notes were quoted at 2.87% bid, 2.85% offered. Pennsylvania notes were quoted at 2.90% bid, 2.85% offered and New York State Trans were quoted at 3.05% bid, 3% offered.
New Issues
New-issue activity was light yesterday, but in follow-through business, Merrill Lynch & Co. as senior manager freed $579 million of Texas Public Finance Authority general obligation refunding bonds from syndicate restrictions.
The bonds were not quoted late yesterday, but market sources said some bonds did trade at yields that were 10 basis points lower than the original net.
There was a flurry of bid-wanted activity early in the session yesterday, traders said, but the action was short-lived. The Street was quiet for most of the session due, in part, to Rosh Hashanah.
In the debt futures market, the December municipal contract settled up 4/32 to 96.10. The December MOB spread widened to negative 301 from negative 299 last Friday.
In secondary dollar bond trading, prices were quoted mixed near session's end.
Chicago AMBAC 5 7/8s of 2022 were quoted at 93-1/2, to yield approximately 6.404%' Puerto Rico GO 6s of 2014 were quoted at 95 1/2-5/8, to yield 6.429%; and New York City Water Authority 6s of 2017 were quoted at 93-3/8, to yield 6.576%. Denver Airport Authority AMT 6 3/4s of 2022 were quoted at 96 3/4-7/8, to yield 7.01% and Florida Board of Education 6s of 2025 were quoted at 95 1/4-1/2, to yield 6.345%.
