Traders breathed a sigh of relief Friday when the last of a wave of economic data proved friendly, leaving market players to work through $6.4 billion of new deals priced last week.
In May, consumer prices rose 0.1%, or 0.2% without the more volatile food and energy components. That was good news for the credit markets, which have been hoping for an ease in monetary policy.
The Federal Reserve failed to intervene Friday, but market players were content to have made it relatively unscathed through a week with the year's heaviest issuance and potentially hostile economic data.
The government market rose 1/2 point and tax-exempt traders took prices 1/8 to 1/4 point higher on the day in light trading.
In the debt futures market, the September municipal contract settled up 4/32 to 94.25.
Looking ahead, the market now has its hands full with a bag of new bonds. The Standard & Poor's Corp. Blue List of dealer inventory rose $143 million Friday, to $1.41 billion.
Investor demand for municipals has generally been strong in 1992, and the market has handled the record supply. In addition, speculation has increased recently about the amount of new cash that will be made available by a July 1 call date.
Market observers expect between $6 billion to $10 billion of bonds priced during the early 1980s to be redeemed. The Street seems to be counting on that money to be reinvested in tax-exempts.
Demand has not been limited to the streets of New York. Echoing market players in most parts of the country, Joseph L. Mangan, chief underwriter for Seattle-Nortwest Securities Corp., said regional demand for bonds is "staggering."
Mr. Mangan said that with up $10 billion coming back into the market on July 1, thanks to the extraordinary number of bond calls, demand for certain types of bonds has been impressive. "Insured and bank-qualified bonds always do well," he said. "However, we are seeing an amazing call for high-quality double-A rated paper."
Although a great many of the bonds to be called carry yields higher than what is currently available in the tax-exempt market, Mr. Mangan does not see those investors completely moving away from the municipal marketplace.
"There were crossover buyers in the early 1980s," he said. "Some of those may flee into the taxable market, but municipals are still a strong investment."
This Week's New Issues
About $4.8 billion of new securities are slated to hit the market this week, with the short-term calendar featuring the largest deal.
Los Angeles County will sell $1.5 billion of tax and revenue anticipation notes, to be priced by Morgan Stanley & Co. in the firm's Los Angeles office. Moody's rates the issue A1.
The long-term slate is dominated by negotiated deals, featuring $208 million of Virgin Islands Public Finance Authority revenue refunding bonds, to be priced by Bear, Stearns & Co.; $200 million of New York City Municipal Water Authority water and sewer system revenue bonds, to be priced by Smith Barney, Harris Upham & Co.; and $150 million of South Carolina Public Authority refunding revenue bonds, to be priced by a syndicate led by Goldman, Sachs & Co.
Several sizable deals will be sold in the competitive sector this week, including $200 million of Los Angeles revenue bonds, $193 million of Florida Department of Transportation revenue bonds, and $115 million of Fairfax County, Va., public improvement refunding bonds.
Light Slate of Economic Data
The market will get a break from economic data this week, although there will be some reports that could move the credit markets.
Sam Kahan, chief economist at Fuji Securities Inc., said on Friday that he expects early May auto sales, to be released today, to show an annual rate of 6.3 million.
Mr. Kahan said that a reading of 6.0 or lower will signal to investors that the economy is growing sluggishly. The closer the reading gets to 7.0, he said, the more strength is suggested.
Mr. Kahan said he expects the most important number this week to be the Thursday release of initial jobless claims for the week ending June 6.
"This is a very important time for that indicator," he said. "If claims fall below 400,000 the market may start to include employment in the perceived recovery."
Mr. Kahan said he expects the figure to come in at 404,000, which would be a decline of 3,000 from the previous week.
"A number like that would be like a coin landing on its side, signifying neither recovery nor a step back," he said.
Jeremy Gluck, an economist at Mitsubishi Bank, said the paucity of economic indicators will not give investors much direction.
"People will be looking at the May industrial production figure," Mr. Gluck said. "But for the most part, that figure was tipped off by the employment numbers."
Mr. Gluck is calling for the figure to rise 0.5%.
"Last week's report of retail sales for May was a telling figure," he added. "It shows that this recovery has a way to go before consumers come charging back into the stores."
There was some sentiment last week that weak economic data would force the Federal Reserve into another ease of its funds rate. However, Mr. Gluck said that the jury is still out on the next move by the Fed.
"It doesn't appear that the Fed is focusing on any one indicator," he said. "Inflation plays a part in their decisions, but inflation has been benign."
Mr. Gluck said that employment and the M2 money supply also weigh in the decisions of the Fed, with an emphasis on employment.
Trading was light, despite economic news that boosted prices, as most market players took a breather after a busy week and headed home early ahead of the weekend.
"The market seems tired," said a trader late Friday. "It's frustrating because the market feels good and it's definitely supposed to trade under these conditions."
New-issue activity was typically light ahead of the weekend, but in follow-through business, Dean Witter Reynolds Inc., senior manager for $489 million of Triborough Bridge and Tunnel Authority special obligation bonds, freed the issue from syndicate restrictions early Friday. In late secondary trading, the AMBAC 61/4s of 2012 were quoted at 981/2-3/4 to yield 6.38%, at the original reoffering yield.
Goldman, Sachs freed $130 million of Arizona refunding certificates of participation from syndicate restrictions but traders said there were few bonds in the Street.
In secondary dollar bond trading, prices were quoted 1/8 to 1/4 point higher on the day in modest activity.
In late action, Florida State Municipal Power Agency AMBAC 6s of 2027 were quoted at 931/2-3/4 to yield 6.47%, Greater Orlando Aviation Authority AMT insured 63/8s of 2021 were quoted at 971/2-7/8 to yield 6.56%. South Carolina PSA 65/8s of 2031 were quoted at 991/8-3/8 to yield 6.68%, California 61/4s of 2012 were quoted at 975/8-7/8 to yield 6.46%, and Oklahoma Turnpike Authority MBIA 61/4s of 2022 were quoted a 973/4-lock to yield 6.42%.
The short-term market was especially quiet on Friday and traders said that investors were looking towards next week's offering of $1.5 billion Los Angeles Co. tax and revenue anticipation notes.
Late in the day, California Rans 31/4s were quoted at 3.90% bid, 3.75% offered; Los Angeles Trans 51/4s were quoted at 3.90% bid, 3.80% offered; Pennsylvania Tans 5s were quoted at 3.85% bid, 3.75% offered; and New York State Trans 3.65s were quoted at 2.92% bid, 2.90% offered.