Municipals dipped roughly 1/4 point yesterday as weakness in overseas bond markets and a big jump in commodities prices pushed Treasuries lower.
"Very slow," one municipal trader said of yesterday's morning's activity. "If it were any slower we'd be going backward."
On the new-issue front, a $150 million Maryland Energy Financing Administration negotiated offering through Lehman Brothers has been postponed until next week to give institutions more time to familiarize themselves with the deal, a source familiar with the offering said. The deal was only tentatively scheduled for this week, he said.
While yesterday's secondary trading was light, tax-exempts appeared to be trading lower in line with Treasuries, the trader said.
Another trader said the market was unchanged to quoted slightly easier.
"In spite of what happened to governments this morning, there really was no selling pressure on our side," he said. Because of scarce supply, "the bid for small amounts in good retail states is terrific," the trader said.
Dollar bonds dropped 1/8 to 1/4 point lower yesterday, while high-grades ended unchanged to slightly weaker. Trading was light.
"The market is in a little harbor of its own, waiting to see which way the wind is going to blow," one municipal analyst said.
Yesterday's June MOB spread was negative 388, compared with negative 391 on Friday. In the debt futures market the June municipal contract closed down roughly 3/8 point to 91 14/32s.
In the Treasury market, the 30-year bond ended slightly more than 1/4 lower to yield 7.4%. The long bond rebounded from about a 3/4 point deficit earlier in the day.
John Lonski, senior economist at Moody's Investors Service, said weakness in the overseas bond markets contributed to yesterday's Treasury market losses.
A growing perception of stronger economic growth in Europe, and possibly Japan, has dampened prospects for further interest rate reductions abroad. In addition faster growth abroad increase inflation risks worldwide, Lonski said.
Yesterday's 4.57 point jump in the CRB also helped push yields higher.
"The CRB was up sharply," Lonski said. But the economist cautioned bondholders against placing too much weight on yesterday's jump, which was driven by "ever volatile" agricultural commodities prices.
"The CRB often can move sharply because of wide swings by agricultural commodities prices," Lonski said. "Thus the inflationary content of a steep upswing by the CRB index often is full of beans."
The economist said that while the CRB also posted a sharp jump on Friday, the Journal of Commerce's industrial materials index finished unchanged and a Moody's industrial metals price index actually ended lower.
Price indices that focus on industrial materials are more reliable inflationary yardsticks than the CRB because movement of industrial materials prices is more closely tied to the underlying pace of business activity. Agricultural prices can be affected by noneconomic variables such as weather, he said.
Aside from those overseas weakness and the CRB, the bond market received three reports for April yesterday that should have put bonds on better footing. At 87.6%, May consumer confidence was down from April's 92.1%. Personal spending dropped 0.1%, while new single-family home sales dropped 6.8%.
As for Friday's May employment report, Lonski sees on overall gain of 250,000 new nonfarm payroll jobs. Once 70,000 of that is adjusted out for the return of striking Teamsters, the increase would be 180,000, he said.
In competitive new-issue action yesterday, Lehman Brothers won $250 million of San Bernardino, Calif., tax and revenue anticipation notes with a bid of 4 1/2%, plus a premium of $1.4 million for an effective rate of 3.98307%. The notes were re-offered at 3.90% net.
Bob Schubert, who manages a $723 million California money market fund as one of three portfolios he manages for the Franklin Group of Funds, said that while he has no problem with the credit, he passed on the offering because the maturity was too long. The notes mature on July 31, 1995.
The $250 million offering was unlikely to interest other fund managers at Franklin because other, more liquid California issues are available, he added.