Municipals languished in the summer doldrums last week until Friday, when durable goods skyrocketed, surprising traders and diminishing hopes for an ease in monetary policy.

New orders for manufactured durable goods jumped 10.7% to $129.9 billion in July, the largest increase in 21 years. The 1.6% decline in June was revised to a 1% drop.

Tax-exempt bond prices dropped 1/4 to 3/8 point in spots on the news, but traders reported only light selling in the secondary market and bid-wanted activity was minimal. In the debt futures market, the September municipal futures contract settled down 19/32 to 93.04.

"It's shaky, but the consensus seems to be that there won't be much more damage," a New York trader said. "There's a lot of uncertainty and confusion because nobody knows why this number came in like this. If retail starts to sell we'll be in trouble, but my guess is they still have a lot of cash."

The market had expected an increase of 1.4% and the big increase soured hopes for an ease in monetary policy. Traders were anticipating another ease after the next round of unemployment data, to be released the first week of September.

"The message here is that we're not going to double-dip and that there is a good chance that the economy will be gathering steam," said Lawrence Krohn, a senior economist at Lehman Brothers. "Bonds may still have hope from inflation numbers, but durable goods has brought down the employment threshold where the Fed will be willing to ease. There's only a 50-50 chance where it seemed more likely they would ease on the employment data before today."

New issue activity was extremely light. In follow through business, Goldman, Sachs & Co., senior manager for $602 million California various purpose taxable general obligation bonds marked Wednesday with a maximum yield of 8.15%, reported an unsold balance of $288 million.

Goldman aggressively priced the bonds and reported an unsold balance of $289 million Friday. A firm officer said late last week that the deal would not be repriced.

In secondary dollar bond trading, New Jersey Turnpike Authority 7.20s, due 21018, were quoted down 3/8 to 102 7/8-103 1/8 to yield 6.65 % to the par call in 1999. Triborough Bridge and Tunnel Authority 6s due 2019 were quoted down 1/4 to 90-1/2 to yield 6.76%.

Short-term note yields backed up about 10 basis points on the day.

In secondary trading, March California notes were quoted at 4.54% bid, 4.50% offered near the end of cash trading Friday. June California notes were quoted at 4.59% bid, 4.55% offered. New Jersey notes were quoted at 4.60% bid, 4.58% offered, while March New York State Trans were quoted at 5.12% bid, 5.10% offered.

Looking ahead, economic news will be light this week, featuring the first revision to gross national product figures for the second quarter to be announced Wednesday, followed by personal income and spending figures for July and single-family house sales for the month on Thursday. Friday, July leading economic indicators will be released.

New supply will be lighter this week, with 30-day visible below the $2 billion mark.

Investors continue to show interest in new deals, but there were more bonds in the Street last week than during previous sessions. The Bond Buyer placement ratio slipped to 79.6% last week from 96% the previous week. And Standard & Poor's Corp.'s Blue List jumped to $1.4 billion , up $428 million from a week ago.

Projected sales this week total $1.5 billion. If scheduled sales hold to that level, it will be the lightest weekly new issuance since the holiday week of July 5, when actual sales were $493 million.

The negotiated sector features $212 million New York State Thruway Authority local highway and bridge services contract revenue bonds, to be priced by Dillon, Read & Co. and $164 million Lewis Co. Public Utility District No. 1, Wash. revenue bonds, to be priced by Smith Barney, Harris Upham & Co.

The competitive calendar is dominated by $120 million Maryland Department of Transportation consolidated bonds.

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