Municipals lost 1/8 to 1/4 points yesterday, weighed down by apathy and even sharper losses in the government market.
"There's just a total lack of conviction," a municipal trader said. "There's no great pressure to sell, and there's no great pressure to buy."
These days, players see upticks as selling opportunities. Bottom fishers, whose bargain hunting used to lend some support in downturns, have disappeared, he stud. "The upticks seem to be sold into as opposed to saying, 'This is it, now we are going to turn around,'" the trader said. Bottom fishers have pulled in their lines because "no one really knows where the bottom is," he added.
The trader said participants seem to be victims of "analysis paralysis" as such concerns as Cuban refugees, health care, the dollar, Japanese trade talks, and the Federal Reserve keep heads spinning.
"I'm really at a loss to figure it out" the trader said. "The day-to-day fluctuations are just indications of what's on people's minds." He noted that the bond market was down yesterday despite a higher dollar.
"It's a dangerous market," the trader said.
He added that it was interesting to see the psychological shift in connection with the Fed's most recent tightening. He said that the bond market shifted from a mindset of thinking that all it needed to rally was a 50 basis point increase, to its current fretting about when the next tightening will take place.
In yesterday's light municipal secondary activity, dollar bond prices dipped 1/8 to 1/4, while yields on high-grade issues were off by two basis points overall, a municipal analyst said. The muni market opened slightly higher, reverted to unchanged by noon, and surrendered to the downside during the afternoon "all on Treasuries,' the analyst said.
The 30-year Treasury bond, which climbed nearly a point on Wednesday, dropped almost a point yesterday for a 7.53% closing yield. Factors ranging from lack of followthrough to Wednesday's auction-related rally, a thin market, and persistent speculation of a higher than expected growth in today's secondquarter gross domestic product report were blamed.
In debt futures, the September municipal contract was down 27/32s to 90 10/32s. Yesterday's September MOB spread was negative 386, compared with negative 389 on Wednesday.
Turning to yesterday's competitive action, a J.P. Morgan Securities group won $88 million of Atlanta bonds with a true interest cost of 6.12%. The bonds were reoffered to investors at a top yield of 6.18% in 2023. The underwriter reported a $12 million balance for the deal late yesterday.
The offering contained $80.11 million of public improvement general obligation bonds and $8 million of various purpose general obligation bonds.
John Pomeroy, portfolio manager of the $119 million Franklin Georgia Tax-Free Income Fund, passed on the Atlanta offering, he said.
"We are well positioned in the Georgia fund right now, and this particular deal didn't offer enough yield for us to change our strategy," Pomeroy said.
Topping next week's competitive slate is an offering of $105 million of Maryland department of transportation revenue bonds on Wednesday. Tuesday's calendar tentatively includes $70 million of Boston GOs.
Next week's negotiated calendar features an offering of $225 million of Denver City and County Airport system revenue bonds through Lehman Brothers. The bonds are subject to the alternative minimum tax. Also next week are $190 million of New York State Thruway bonds through Morgan Stanley & Co., and $110 million of Chelsea, Mass., general obligation bonds through Lehman Brothers.
Christopher M. Dillon, a vice president and market strategist at J.P. Morgan & Co., said that while the funds may be willing to take a look at a new deal provided they have cash or if they see an interesting swap opportunity, not much is going on. Summer vacations and a drop off in cash inflows have the funds, for the most part, sitting right.
In addition, with municipals trading at rich levels relative to taxables, the tax-exempt market is unlikely to see much interest from crossover buyers, Dillon said.
"It's really left up to retail," he said, adding that Wednesday's Contra Costa Water District, Calif., issue sold well though the intermediate sector, helped by good retail demand.
Dillon said he expects municipals to continue in this mode in the days leading up to next Friday's August employment report and the Labor Day weekend.
"I think everybody will be back after Labor Day," he said. For now, however, "we're just sort of being a function of Treasuries," Dillon said. On a more specific note, Dillon said he continues to watch Denver Airport bonds.
"They have picked up a little bit," Dillon said. He noted a roughly 15 basis point improvement over the general market in the past few days compared with levels seen at the start of the week.
Moody's Investors Service's affirmarion of Denver's conditional Baa rating helped. Dillon said. Denver bonds also benefited from an agreement between United Airlines and the city to work together on two parallel baggage systems to get the airport opened Feb. 28, he said. In other news yesterday, the 30-day visible supply of municipal bonds totaled $2.46 billion, down $261.8 million from Wednesday. That comprises $1.326 billion of competitive bonds, down $79.7 million from yesterday, and $1.130 billion of negotiated bonds, down $182 million from Thursday. Standard & Poor's Blue List of municipal bonds declined $84.2 million yesterday to $1.742 billion.
