A Fed ease boosted prices 1/2 point Friday in thin trading, brightening prospects for this week's $4.9 billion new-issue slate.
August non-farm payrolls dropped 83,000, when the Street expected an increase of 175,000. The weakness prompted the Federal Reserve to lower the funds rate to 3%.
Municipal traders marked bond prices up on the news, pushing yields down five basis points in the serial range, while some liquid dollar bonds rose more than one point.
In the debt futures market, the December municipal contract settled up 28/32, to 97.17.
Buyers were mostly absent from the Street, and business was done dealer to dealer, traders said, but the positive tone was especially welcome going into this week's new deals. On average, bond prices regained one to 1 1/2 points in thin trading last week.
"The data should set a positive tone for the near term," a trader said Friday. "We still have supply to worry about, but hopefully people will be willing to take a little more risk."
The Bond Buyer calculated the 30-day visible supply at $6.22 billion Friday, while The Blue List totaled $1.13 billion.
This week, $4.9 billion of new securities are slated for sale.
Some market observers predict that buyers will return to the market in force this week, encouraged by the prospect of higher yields on new issues.
"Unless the Treasury market gets hammered, municipal buying activity should pick up dramatically after Labor Day, both through direct purchases and bond funds," George D. Friedlander, head of research at Smith Barney, Harris Upham & Co., noted in the firm's latest newsletter.
However, the market is likely to stick to a fairly narrow price range, thanks to supply.
"If rates go up, demand strengthens and supply dwindles," Mr. Friedlander added. "If rates drop even slightly, the avalanche of rate sensitive refundings will reappear. In this environment, recent gyrations in the marketplace should be muted, at least for a few weeks."
The negotiated calendar is dominated by $494 million of New York State Medical Care Facility Authority revenue refunding bonds, to be priced by Goldman, Sachs & Co., $340 million New York Local Government Assistance Corp. revenue bonds, also to be priced by Goldman, and $300 million of Illinois ~Build Illinois' sales tax revenue refunding bonds, to be priced by PaineWebber Inc.
The competitive sector features $124 million of Industry Urban Development Agency, Calif., civic recreational industrial redevelopment project No. 1 tax allocation refunding bonds.
Traders said activity was light during the abbreviated session ahead of the holiday weekend.
In secondary dollar bond trading, Chicago AMBAC 5 7/8s of 2022 were quoted at 95-1/8 to yield 6.24%, Puerto Rico GO 6s of 2014 were quoted at 97-1/4 to yield 6.25%, and Florida Board of Education 6s of 2022 were quoted at 98-1/2 to yield 6.14%. Los Angeles Department of Water and Power Authority 6s of 2032 were quoted at 97-1/4 to yield 6.20%, and New York City Water Authority 6s of 2017 were quoted at 95-1/4 to yield 6.40%.
In follow-through business, First Boston Corp. released $224 million of Michigan State Housing Development Authority rental housing revenue bonds from syndicate restrictions.
In late secondary trading, the MBIA 5 3/4s of 2009 were quoted at 6% net bid, 5.95% offered.
In the short-term note market, yields fell 10 to as much as 20 basis points on some securities.
In late trading Friday, Los Angeles Trans were quoted at 2.92% bid, 2.90% offered, Texas Trans were quoted at 2.92% bid, 2.90% offered, and Wisconsin notes were quoted at 2.98% bid, 2.95% offered. New York State Trans were quoted at 3.10% bid, 3.05% offered.