Yields on The Bond Buyer's weekly bond indexes stabilized this week, but a hug upcoming supply and fresh wounds from last week's price correction kept the market's tone heavy.
The 20-bond index of general obligation bonds fell one basis point, to 6.95% from 6.06% last week, and the 11-bond was off two basis points, to 5.95% from 5.97%.
The 30-year revenue bond index declined four basis points, to 6.20% from 6.24% last week.
The daily Municipal Bond Index's average yield to par call was unchanged at 6.18%.
The indexes, however, were calculated before municipal bond prices weakened by as much as 1/2 point in late afternoon trading yesterday as follow-through buying failed to materialize in the U.S. Treasury market after a weak 30-year bond auction.
The Treasury market performed slightly better than municipals, decreasing five basis points, to 7.39% from 7.44% last Thursday.
The tax-exempt market was able to begin its comeback after last Friday's report by the Labor Department that nonfarm payrolls rose 198,000 in July.
However, 75,000 of those jobs were due to a federally funded summer jobs program, giving further evidence that the United States is having a difficult time creating permanent jobs.
"The unadjusted [jobs] figure, minus the seasonal adjustment, said that July non-farm payrolls had actually decreased significantly," said Philip Braverman, chief economist at DKB Securities. "When all the seasonal data is waded through, I think there will be a renewed call for the Fed to ease."
But despite news the economy was still struggling, activity remained slow and the market's tone indecisive as the future supply picture mushroomed and investors remained on the sidelines.
The Bond Buyer's 30-day visible supply jumped to over $7 billion on Monday and remained there through Wednesday, each day setting a record for the year.
The future supply figure was at its highest level since Nov. 19, 1991, when it crossed the $8 billion barrier.
"Municipals are cheap to governments, but buyers have been playing coy and we're hung up here," another trader said. "There's still a lot of money out there, but they've got the Street offsides and the upcoming calendar is staggering. I say we stick to these levels until we see how those deals perform or the Treasury market takes off."
In addition, Standard & Poor's Corp.'s The Blue List has been surging. Since July 24, dealer inventories have jumped $593 million, to $1.47 billion from $880 million.
"There are too many bonds around and it's going to take some time for the market to absorb them," said a trader.
Traders were also hesitant to make any big moves because of the battering from last week's price corrections.
"A lot of people were badly hurt last week and there's a reluctance to get involved right here," a trader said. "Now it's a matter of licking the wounds and getting healthy again."
In the short-term sector, The Bond Buyer's one-year note index decreased two basis points, to 2.99% from 3.01% last week.