Municipal bond prices shed roughly a point yesterday, yanked down by even sharper Treasury market losses.
"It's just the government market," one municipal trader said. "I don't think our market by itself was in a mood to go down." While tax-exempts were quoted down, "they really didn't get tested in terms of major customer selling," the trade said.
Initial gains on what seemed a weaker-than-expected first quarter gross domestic product report failed to withstand closer scrutiny of the data, and sellers drove the 30-year Treasury bond down more than 1 3/4 points to yield 7.26%.
In late secondary dollar bond trading, Florida Board of Education 5 1/8s of 2022 were quoted at 6.30% bid, 6.25% offered; New York City Water MBIA 5 1/2s of 2023 were 6.27% bid, 6.20% offered; and Tribe 5s of 2024 were 6.38% bid, 6.30% offered.
In debt futures, the June municipal contract was quoted down nearly 1 1/2 points to 91 21/32s. Yesterday's June MOB spread was negative 419, down from negative 433 Tuesday.
The Commerce Department reported that first-quarter GDP grew at an annual rate of 2.6%. While the GDP growth rate fell below the 3.3% some economists had expected, the decline was linked to a drop in government spending. Excluding that decline, private sector GDP rose 4.6%, said Brian S. Wesbury, chief economist at Griffin, Kubik, Stephens & Thompson Inc.
Also yesterday, the market learned that durable goods orders moved up 0.4% in March. Westbury noted that February's durable goods figure was revised upward, and that seven out of the last eight months have been positive. In addition, a 31,000 decline in weekly jobless claims was seen, which might foreshadow a strong April employment report.
The numbers show "the economy is still going strong, and I don't think there's any doubt about that," Wesbury said.
The data, while not strong enough to make another Fed tightening imminent, do reverse the market's perception of the past week or so that the economy was slowing down, Wesbury said.
"What this data today did was shoot that theory right in the foot," he said.
Wesbury said while yesterday's economic indicator data may prompt the bond to test the high end of the 7.10% to 7.40% range it's been trading in of late, it is unlikely to trigger a break through 7.40%.
However, Wesbury expects rates will end 1994 at higher rate than current levels, he said.
"I believe that the decline in the bond market today is indicative of the general direction of rates," Wesbury said.
While yesterday's numbers show a strengthening economy, the economists sees "a less than 50%" chance that the Fed will tighten at the May 17 Federal Open Market Committee meeting.
Although another Fed tightening is probably ahead, Wesbury thinks its more likely to occur sometime in June.
Bernie Schnitzer, senior trader and executive vice president at J.B. Hanauer & Co., noted that municipals fared better than Treasuries yesterday.
"I just think it's a technical thing in here," he said of yesterday's losses. Schnitzer attributed yesterday's Treasury market losses to the dollar's weakening against the yen and the government market's poorly received five-year note auction.
If anything, Schnitzer said yesterday's economic indicators showed low inflation and was positive for the market.
He said he thinks New York City municipal bonds are undervalued.
"I just think that [Mayor Rudolph] Giuliani is doing all the right things and the bonds are cheap to the market," Schnitzer said.
Overall in the tax-exempt market, "There's a shortage of municipals because there's no supply," he said.
New Issues
In negotiated action yesterday, a CS First Boston group priced and repriced $85 million Connecticut Housing Finance Authority housing mortgage finance program bonds.
The offering contained serial bonds priced to yield from 3.40% in 1995 to 6% in 2009. A 2013 term, containing, $26 million, was priced as 6.10s to yield 6.22%. A 2017 term, containing $17 million, was priced as 6.10s to yield 6.25%. At the repricing, the yield on the 2013 term was increased by two basis points. The bonds are callable beginning May 15, 2004 at 102, declining to par in 2006. Moody's Investors Service and Standard & Poor's Corp. rate the offering AA.
In competitive action, a Dillon, Read & Co. group won an offering of $64 million Florida State Board of Education capital outlay full faith and credit series A bonds with a true interest cost of 5.6358%.
The offering consisted of serial bonds priced to yield from 3% in 1995 to 5.90% in 2014.
Moody's Investors Service, Standard & Poor's Corp., and Fitch Investors Service rate the offering double-A. The bonds are callable beginning Jan. 1, 2004 at 101, declining to par in 2005.
Dealer inventories are on the rise again as Standard & Poor's Corp's The Blue List increased $26 million yesterday, to $1.528 billion from $1.502 billion on Tuesday.
The Bond Buyer calculates 30-day visible supply today at $4.55 billion, up $280 million from yesterday.
