Prices posted slight gains Friday in sympathy with a strong Treasury rally, but $ 11.6 billion of scheduled deals this week are likely to dampen enthusiasm in the tax-exempt arena.
The market suffered steady price losses for most of last week, triggered by new-issue calendars that burgeoned to $7.05 billion.
The downward trend slowed when Treasury prices rallied 3/4 point on Thursday. The slide halted after the government market added 5/8 point gains Friday, lifting the spirits of tax-exempt traders, who were downtrodden by the overwhelming number of new deals.
The credit markets improved after the Commerce Department reported new orders for durable goods fell 0.1% in August, to $119.7 billion. The drop was in part caused by large declines in electronic equipment.
Also adding to the bleak economic picture, existing home sales fell 3.2% in August, to a seasonally adjusted annual rate of 3.34 million units, the National Association of Realtors reported.
However, traders noted that although the bid-side for secondary bonds rose as much as 1/4 to 3/8 point Friday, the offered side remained mostly unchanged. This indicated, they said, a lack of broad-based bullishness ahead of still formidable new-issue calendars.
Bond deals scheduled for sale this week total $6.3 billion. The short-term calendar was tallied at $5.3 billion, driven up by a $4 billion California offering.
The total supply also includes 27 negotiated issues that add up to $2.18 billion that have been placed on a day-to-day sale basis over the last several weeks.
Traders Friday said the multitude of new issues is likely to rein in any bullish players.
But other market players said a continued Treasury rally could make for smoother sailing in the primary and has the potential to make for stronger secondary gains.
"If Treasuries hold and continue to rally it will help us to get through supply," the head of a major Wall Street trading desk said Friday. "If it fails to improve, however, there will certainly be more grief in the municipal arena."
"Investors will get their cash from under the mattress if Treasuries rally significantly," another traded argued. "They'll gobble up supply, if it looks like we're headed higher for real."
However, market players also have cautioned that, even if municipals are able to rally, corresponding lower interest rates could attract more issuers to the market.
The Bond Buyer calculated 30-day visible supply at $8.31 billion. This is manageable when compared to last week's $11 billion forecast, traders said.
But just how many deals will actually be priced remains a matter of speculation.
Last week, market conditions were uncertain enough that the largest deals were all delayed and were left hanging over the market like the sword above Damocles.
The negotiated calendar is dominated by $700 million Washington Public Power Supply System refunding revenue bonds, to be priced by First Boston Corp.; $450 million Massachusetts Water Resources Authority general revenue refunding bonds, to be priced by Goldman, Sachs & Co.; and $450 million of Illinois State Toll Highway Authority general revenue refunding bonds, to be priced by Donaldson, Lufkin & Jenrette Securities.
The competitive menu offers a lighter fare, with $100 million Dade County, Fla., revenue bonds dominating the slate.
The short-term sector features the largest deal of the week. An issue of $4 billion California fixed-and variable-rate revenue anticipation notes will sold Wednesday in the competitive sector.
Illinois is also slated to sell $300 million of general obligation certificates competitively.
Possible Fed Ease?
Economic news has offered few surprises for the market and generally reflected a weak economy.
But that scenario could change Friday when the Labor Department reports on unemployment figures for September.
Market players hope that the Federal Reserve Board will ease monetary policy after the number is released, giving bond prices an additional boost.
Michael Moran, chief economist at Daiwa Securities America Inc., said Friday that he expected non-farm payrolls to show a decline of 20,000 overall.
He noted that his estimate was "more optimistic" than the average forecast. He predicted some strength in the manufacturing and retail sectors of the economy and an increase in construction employment, reflecting the sharp gain in housing starts last week that resulted from Hurricane Andrew.
"We're still not going to see a strong labor market, but a better one in prior months," he added. "We will be looking at a flat labor market rather than a contracting one. If the data do come in this way, the market will probably retreat somewhat."
Less important data also will be released this week, including August leading indicators, which is slated for release on Tuesday.
That announcement will be followed by the release of August single-family home sales on Wednesday. Jobless claims for the week ended Sept. 19 will be reported along with construction spending on Thursday.
August factory orders will be reported on Friday.
Traders reported a disappointing lack of secondary action Friday, considering the bullishness in the Treasury market.
In light new-issue activity in the short-term primary sector, Morgan Stanley & Co. as senior manager priced $170 million Massachusetts Bay Transportation Authority Series C notes.
The securities, due Oct. 1, 1993, were reoffered to investors as 3 1/2S, to yield 3.15%.
The issue is rated MIG-2 by Moody's Investors Service, SP-1 by Standard & Poor's Corp., and F-1 by Fitch Investors Service.
In follow-through business, First Boston reported all bonds sold and the account closed on $190 million New York State full faith and credit various-purpose general obligation bonds.
In secondary dollar bond trading, prices were quoted unchanged to as much as 3/8 point higher, depending upon the name.
In late action, Chicago, AMBAC 5 7/8s of 2022 were quoted at 93-3/4, to yield approximately 6.40% on the bid-side; Puerto Rico GO 6s of 2014 were quoted at 95 1/2-5/8, to yield 6/38%; New York City Water Authority 6s of 2017 were quoted at 93 1/4-3/8, to yield 6.55%.
Denver Airport Authority AMT 6 3/4s of 2022 were quoted at 97 1/2-5/8, to yield 7.10%; Los Angeles Department of Water and Power Authority 6s of 2032 were quoted at 95 5/8-96, to yield 6.30%; and Florida Board of Education 6s of 2025 were quoted at 95 1/4-1/2, to yield 6.34%.
In the debt futures market, the December municipal contract settled up 13/32, to 96.06.
In the short-term note sector, yields rose about five basis points on average as retail investors continued to take advantage of cheap prices. On the week, yields have fallen 15 to 20 basis points.