Traders took bonds higher early yesterday, but the move stalled and prices stuck to familiar territory.
Municipals moved 1/8 to 1/4 point higher, while futures moved up about 10/32 after early signs of economic weakness were seen in the construction sector. Soon after the start of trading, it was reported that August construction spending fell 1.1%, to an annual rate of $456 billion. The originally reported 0.5% decline in July construction spending was revised to a 0.1% gain. The market made the gains despite the clash in Russia over the weekend. This surprised some who expected bonds to sell off if violence broke out.
But, continuing the recent trend, the market was unable to build any significant upward momentrum. Bond fund demand has been anemic as the forward calendar of new issues grows. Buyers have sat still, forcing dealers to cheapen new issues in the face of the growing 30-day visible calendar.
The Bond Buyer calculated 30-day visible supply at $7.24 billion yesterday, up from $5.97 billion Friday. The 30-day visible has risen $2.73 billion in the past two business days. It is at the highest level since August 2, when it was $7.37 billion.
The competitive component of supply, at $3.21 billion, is at its highest since Oct. 12, 1992, when it was 3.28 billion.
Dealers, meanwhile, have been reluctant to make significant moves amid quarter-end selling pressure and mixed messages about economic strength. Their inventories have increased, as a result, helping to keep the market down. Reflecting the growing secondary supply, The Blue List of dealer inventory stood at a hefty $2 billion yesterday.
The market continued its sideways move yesterday. Some dollar bonds managed to sustain some 1/4 point gains, while high-grade yields were said to have dropped about two basis points. But action was spotty and there was a distinct lackluster tone to the market, traders said.
In secondary dollar bond trading, New York State Thruway service contract 5 1/4s of 2013 were quoted at 5.56% bid, 5.54% offered; California general obligation 4 3/4s of 2023 were at 91 1/2-3/4 to yield 5.32% on the bidside; and Florida Municipal Power AMBAC 4 1/2s of 2027 were 5.24% bid, 5.20% offered.
South PUB 5 1/8s of 2032were quoted at 5.46% bid, 5.45% offered; South Carolina PSA FGIC 5s of 2025 were 5.34% bid, 5.31% offered; and Florida State Board of Education 5 1/4s of 2023 at 99-1/2 to yield 5.31%.
In the debt futures market, the December municipal contract hit a high of 104.27, but settled up only 2/32 to 104.19. The MOB spread was unchanged at negative 474.
In the short-term note market, yields were one to three basis points lower on the day.
In late trading, California Rans were quoted at 2.68% bid, 2.66% offered; New York State Trans were quoted at 2.60% bid, 2.55% offered; and Texas Trans were quoted at 2.70% bid, 2.67% offered.
New issue activity was light yesterday, but Prudential Securities Inc. jumped into the primary with $151 million Illinois State general obligation college savings bonds.
The firm tentatively priced the non-callable serial bonds to yield from 3.25% in 1995 to 5.35%.
The bonds are rated double-A by Moody's Investors Service and AA-minus and Standard & Poor's Corp.
Looking ahead, traders said they were reluctant to make any big price moves ahead of Friday's employment report. Typically, the Street Will ignore the secondary and focus instead on new issues.
Among sizable deals, New York City is expected to offer over $500 million new money bonds as early as today. A syndicate led by Lehman Brothers will price the deal. Market sources said yesterday that bonds due around 2022 could be priced to yield as high as 5.80%.