Futures prices overcame initial losses and went on to rally Friday, but the cash market lagged.
Traders were unable to boost cash prices by more than 1/2 point ahead of $6.8 billion of new deals expected to be priced this week.
The markets opened lower Friday, continuing the recent downward trend, and moved even lower after the release of the retail sales report.
Total retail sales in October surged 1.5%, led by autos and other durable goods, the Commerce Department reported. The increase, above market expectations, marked the seventh straight monthly advance and was the biggest gain since the 1.9% in April.
Municipals sold down 1/4 to 1/2 point after the news and traders reported several sizesable bid-wanted lists circulating in the secondary. But prospects turned suddenly brighter soon afterward when the muni futures contract hit a low of 101.08. The move lower sparked some short covering, traders said, that turned into solid buying not long afterward. Upward momentum increased as commodities prices fell, traders said. The Treasury 30-year bond been to improve dragging municipal cash with it.
By session's end, the December municipal contract settled at its high, up one point at 102.20. Cash prices were quoted anywhere from unchanged to up 1/2 point, traders said.
"People got whipped around and there's not much confidence in these levels out there," a trader said late in the day. "We're just hoping that all of the bad news is out of the way and we can stabilize."
In secondary dollar bond trading, Chicago O'Hare MBIA 5s of 2018 were quoted at 5.58% bid, 5.57% offered; New York State Power Authority 5 1/4s of 2018 were quoted 96 1/4-97 to yield 5.49%; and Florida Board of Education 5 1/8s of 2022 were 941/2-95 to yield 5.50%.
Looking ahead, the market must contend with more economic indicators, which recently have showed strength. Market players will keep an especially close eye on Wednesday's housing starts report and the Philadelphia Federal Reserve's survey on Thursday.
The market will also take on its share of new deals this week.
The negotiated calendar contains some sizable offerings, including $700 million New York City general obligation refunding bonds, to be priced by Goldman, Sachs & Co.; $350 million Washington Metropolitan Area Transportation Authority gross revenue transportation refunding bonds, to be priced by Merrill Lynch & Co.; and $468 million Battery Park City Authority, N.Y., junior and senior revenue refunding bonds, to be priced by Morgan Stanley & Co.
The competitive sector features $345 million Georgia general obligation bonds; $229 million Los Angeles Department of Water and Power refunding revenue bonds; and $184 million Virginia refunding bonds.
In addition, the Port Authority of New York and New Jersey announced Friday it will accept competitive bids for $300 million consolidated bonds on Wednesday.
In the short-term note sector, Massachusetts plans to sell $240 million full faith and credit notes by competitive bid.