Municipals ended unchanged to weaker Friday as mixed inflation news left participants looking to tomorrow's consumer price index report for guidance.
One analyst judged dollar bonds off 1/8 points, with high-grade issues unchanged. Earlier, however, some traders called the overall market down 1/2 to 3/8 points or more.
"Definitely, our cash market is down more than Treasuries," one trader said, adding, "We had outperformed and at this point we're giving back."
The market was down on general sentiment, he said, citing big selling Thursday, concern over tomorrow's consumer price report, and new supply.
Another trader said: "I think the street got long, uncomfortably long," adding that participants were loath to carry that inventory through Friday's producer price index report and tomorrow's CPI number. This week's "fairly sizeable" supply is also a worry.
"We still have no real institutional buying," the trader said, adding, however, that the retail side offers a rosier picture.
"We're seeing good retail business," the trader said.
In Friday's debt future market, the September municipal contract ended down nearly 1/2 point to 92-1/4. The September MOB based spread was negative 386 compared to negative 388 on Thursday.
A third trader called Friday's market hard to call.
"It's hard to tell how much we're down [because] nothing's really happening," the trader said, "It's a Friday in the summertime."
The trader also pointed to tomorrow's CPI report.
"Everybody's waiting for the numbers Tuesday," he saidm adding that the Friday's producer price index figures were "nothing dramatic."
Producer prices overall posted a 0.1% decline in May. However, the core PPI figure, which excludes food and energy, rose 0.4%.
"The bottom line is that ex-food and energy you're up 0.4%," Brian S. Wesbury, chief economist at Griffin, Kubik, Stephens & Thompson Inc.
The overall PPI figure, while it was good for the bond market, was held down by lower food and energy prices. Those prices are unlikely to stay at present levels for long, Wesbury said, citing a run-up in gas and oil prices.
Food and feed prices are also unlikely to remain low, given dry Mid-western weather and recent hikes in coffee, cocoa, and other commodities prices.
As for tomorrow's CPI figure, Wesbury sees a 0.3% rise in both the overall and core rates.
"That would be right on consensus, which isn't likely to move the market a great deal," he said.
If the report coems in as expected, however, it does signal that inflation is on the rise. The numbers to watch now are the growth numbers such as tomorrow's retail sales figure and Thursday's housing starts data.
While recent numbers have shown signs of weaker growth, a closer look is warranted. For instance, auto sales may have slowed, but the drop is caused by declining inventories not weak demand, Wesbury said.
"We're seeing autos go off showroom floors at list or better," he said.
Turning to the primary market, this week's negotiated calendar includes two large deals -- $500 million of Metropolitan Washington Airports Authority, D.C., airport system revenue bonds through Lehman Brothers, and $419 million New York City Industrial Development Agency special facility revenue bonds through Smith Barney Inc.
Topping the competitive calendar is an offering of $356 million Pennsylvania revenue bonds.