A surprising drop in durable goods orders nudged credit market prices higher yesterday, but municipal trading was light ahead of more issuance.
New orders for durable goods dropped 2.4% in May, to $119.5 billion, the first decline in three months. Economists surveyed by The Bond Buyer generally expected a 0.8% increase.
Summer doldrums plagued the tax-exempt secondary market, and many bond prices were unchanged, but some bonds traded at levels as much as 1/4 point better on the day, market players said.
In the debt futures market, the September municipal contract settled up 13/32, to 95.17.
The market tone remained firm after the Treasury set a 6 3/8% coupon on $10.5 billion of five-year notes it auctioned at an average 6.43% yield.
Tax-exempt traders were hopeful that Treasury traders could punch through resistance at 7.80% on the 30-year bond.
"They failed to do it today, but the fact that the contract held through par is very constructive," one Wall Street trader said.
"They'll take another run at it."
But other traders noted that the government market has been unable to sustain levels lower than 7.80% for any length of time and that disappointment could translate into selling especially since dealers own bonds from heavy new issuance.
"If you can't break through it, that shows there are people selling into the strength," a trader said, "If everybody's loaded up on bonds and we still can't punch through 7.80% maybe the next move is lower."
Still, many market players insist that investor demand will remain strong as July 1 bond calls redeem high-coupon paper, driving institutional investors to replace inventory.
Others note that buyers "act invested" and the effect of the July 1 calls has already been felt, or will be more muted than the Street hopes.
Several traders added that buyers could turn picky if rates go too low. "Buyers are acting like they're invested," said one market source, "and the Street is heavier than it may want to admit."
Meanwhile, secondary trading was lackluster yesterday, although traders did report some bid-wanted activity.
Several market players noted that quality spreads have narrowed considerably over the last month.
In secondary dollar bond trading, Intermountain Power Agency 6s of 2012 were quoted at 95 1/4-1/2 to yield 6.425%, New York City Water Authority AMBAC 6.20s of 2021 were quoted at 97 1/2-3/4 to yield 6.39%, Triborough Bridge and Tunnel Authority AMBAC 6 1/4s of 2012 were quoted at 98 3/4-99 to yield 6.36%. Greater Orlando Aviation Authority AMT 6 3/8s of 2021 were quoted at 98 1/2-5/8 to yield 6.49 and Oklahoma Turnpike Authority MBIA 6 1/4s of 2022 were quoted at 98-1/4 to yield 6.40%.
In the short-term sector yesterday, participants said that trading was muted as many investors waited for the $1.4 billion New York City note deal.
Late in the day, California Rans 3 1/4s were quoted at 3.35% bid, 3.25% offered; San Bernardino Co., Calif., Trans. 3 3/4s were quoted at 3.08% bid, 3.02% offered; Pennsylvania Tans 5s were quoted at 5.40% bid, 5.25% offered; and new York State Trans 3.65s were quoted at 2.82% bid, 2.80% offered.
Today's Big Deals
New-issue activity was light yesterday, and supply has tapered off from heavier levels earlier this month. The 30-day visible supply, as measured by The Bond Buyer, stood at $3.39 billion yesterday. Standard & Poor's Corp.'s Blue List, which is an approximate measure of dealer holdings, totaled $1.36 billion.
Market players said yesterday that the results of new deals would likely prove or disprove the current price levels.
Looking ahead to today's new issue slate, New York City will sell $1.4 billion of various anticipation notes in the competitive sector.
Market players late yesterday said they expected a 3% yield on $700 million revenue anticipation notes and a 2.90% on $700 million tax anticipation notes.
However, after California grabbed considerably lower rates, some traders said that yields could be as low as 2.60% to 2.70%.
In long-term new issuance today, the market will watch the competitive sale of $403 million of Pennsylvania GO bonds, rated A1 by Moody's Investors Service and AA by Standard & Poor's Corp.
Market players estimated that yields in 2012 could be at 6.35% to 6.40%.
First Boston Corp. as senior manager priced $81 million of Chicago Metropolitan Housing Development Corp. housing development revenue refunding bonds, which are FHA-insured mortgage loans, section 8 assisted projects.
The offering included $59 million Series A bonds priced at par to yield 6.75% in 2012 and 6.85% in 2022. About $22 million Series B bonds were priced at par to yield 6.80% in 2012 and 6.90% in 2022.
The managers expect a double-A rating from Moody's.
Kemper Securities Group priced $60 million of Kentwood Public Schools, County of Kent, Mich., school building and site refunding bonds.
The offering included serial bonds priced to yield from 3% in 1993 to 6.25% in 2007. A 2012 term was priced as 6.40s to yield 6.444% and a 2015 term was priced as 6.40s to yield 6.473%.
The bonds are rated Aa by Moody's and A-plus by Standard & Poor's.