Profit-takers took bond prices lower Friday after a one week climb that was unscathed by setbacks.
After a five-day string of price gains, market players sold off, taking profits, even though the consumer price report confirmed that inflation remains in check. Backing Thursday's producer price report, the consumer price index came in at market expectations, gaining 0.2% in November, as all price categories advanced except energy, the Labor Department reported. The core CPI, excluding food and energy, increased 0.3%.
Downward pressure increased after the University of Michigan's index of consumer confidence posted a solid increase to 87.7 from 81.2 in November. Long Treasury bonds headed down 1/2 point to yield 6.19%.
Tax-exempt trading was relatively light, after a busy and bullish week, and prices were quoted down 1/4 point, by session's end.
In secondary dollar bond trading, Orange and Orlando FGIC 5 1/8s of 2020 were quoted at 5.35% bid, 5.30% offered and Chicago O'Hare MBIA 5s of 2018 were 5.44% bid, 5.40% offered.
In the debt futures market, the March municipal contract settled down 17/32 to 103.00. The March MOB spread narrowed to negative 401 from negative 411 on Thursday.
Most traders noted the bid for bonds weakened even more than quoted prices showed, but blamed the weakness on apathy ahead of the weekend after a big price run-up.
But several traders said the bid for bonds weakened even more, They said the increase in investor demand that has driven prices to the top of the range is not pronounced enough to call it a bear or a bull market.
"We've hit the top of the trading range of 6.12% to 6.37% on the 30-year Treasury bond," one trader said. "Even though munis have some ground to make up, we move with the Treasury market. The next move may be a gap lower."
"Until we break out of as range, anybody who argues for a bull or bear market is kidding themselves," another trader said.
This week's economic calendar is gentler than last week's, but the market will probably give some attention to today's retail sales report, Thursday's Philadelphia Federal Reserve report, and Friday's housing starts data.
Supply in on the increase. The Bond Buyer calculated 30-day visible supply Friday at $5.6 billion up $ 1.522 billion from Thursday. If the bid for bonds continues last week's trend deals should blow out, players noted. Reflecting the better bid for bonds, The Blue List of secondary dealer inventory fell $27.8 million to $1.3 billion.
The Bond Buyer on Friday tabulated this week's total bond and note issues at $5.4 billion. But some late additions Friday boosted the total amount.
The competitive calendar totaled $613 million but is devoid of any big offerings.
The negotiated slate features some sizable deals, including $600 million District of Columbia general obligation refunding bonds, to be priced by WR Lazard, Laidlaw & Mead Inc.
Also this week, Merrill Lynch & Co. is expected to price $416 million Dade County, Fla. water and sewer revenue bonds; $440 million Georgia Municipal Electric Authority revenue refunding bonds are to be priced by CS First Boston; $415 million New York State Dormitory Authority lease revenue bonds will be priced by PaineWebber Inc.; and $225 million Arizona Transportation Board highway revenue bonds, will also be priced by PaineWebber.
