Friday's employment report pushed bond prices higher and gave the market a firm tone going into this week's $5.4 billion new-issue slate.
Both Treasury and municipal bond prices improved after the May employment report showed less improvement in the job sector than the Street expected.
Economists surveyed by The Bond Buyer expected a 95,000 gain in May nonfarm payrolls, while most of the economists predicted unemployment would remain unchanged, at 7.2%. But the number of nonfarm jobs grew by only 68,000 in May after a revised 182,000 surge in April, bringing the total of payroll employment nationwide to 108.450 million. The unemployment rate rose 0.3% to 7.5%.
"The payrolls report was a mild surpise," acknowledged a trader. "The unemployment rate suggests that this economic recovery will be slower than expected."
Hoping the news might prompt a Fed ease, the Treasury market rose as much as 5/8 point, while municipals lagged in the distance.
Traders were optimistic about price prospects and the tone was firm, but they were also cautious and wanted proof that the Treasury market could hold its immediate gains before moving more aggressively to buy bonds.
By early afternoon, the Treasury market came off its highs and some traders said they were uncertain about prospects for an ease. Nevertheless, by session's end, tax-exempt prices were quoted up 1/4 on average and the firm tone remained in place.
In the debt futures market, the September futures contract settled up 4/32 to 94.22, while the September MOB spread widened to negative 160 from negative 153 Thursday.
Looking ahead, May retail sales will be released Thursday, and the markets will pay particular attention because the numbers have showed more growth over the last several months.
Michael Niemira, economist at Mitsubishi Bank said that he expects the retail sales figure to show an increase of 1.2%.
The market also faces new inflation data this week when the Labor Department reports the procedure price index for May on Thursday, followed by the May consumer price report on Friday.
The market will take on a total of $5.4 billion of new securities, highlighted by New York deals.
Traders said that investors should have plenty of cash to spend on the new paper, but added the New York deals are likely to feature some slight price concessions and some bond insurance.
Further, Standard & Poor's Corp. said it assigned an A-minus rating to New York State's $250 million serial bonds it will sell competitively this week, and affirmed the A-minus rating on the state's $4.8 billion of outstanding debt.
New York will also market a sizable deal in the negotiated sector, $480 million Triborough Bridge and Tunnel Authority special obligation bonds, to be priced by Dean Witter Reynolds.
In other competitive action, Virginia will sell $104 million GO bonds. Utah will sell $85 million GOs.
The negotiated sector features $300 million Georgia Municipal Electric Authority revenue refunding bonds, to be priced by First Boston Corp., and $250 million Massachusetts GOs, to be priced by Merrill Lynch & Co.
In addition, Clark County, Nev., is expected to return to the marketplace to sell $250 million GO limited tax transportation improvement bonds Tuesday, managed by Smith Barney, Harris Upham & Co.
This will be the second time the county will attempt to sell the bonds. Last week the deal was pulled following preliminary pricing, due to unfavorable market conditions.
The short-term sector features several sizable deals, including $200 million Santa Clara County. Calif., 1992-1993 tax and revenue anticipation notes and $150 million Contra Costa County, Calif., tax and revenue anticipation notes to be sold competitively. First Albany Corp. will price $155 million of Monroe County, N.Y., bond anticipation notes in the negotiated sector.
The firm market tone prompted some improved follow-through business on new deals, and traders reported some light trading and some small bid-wanted lists. With the jobs data out of the way, most market participants were content to use the weekend and inclement weather in New York as an excuse to do very little business.
In secondary dollar bond trading, prices improved as much as 1/4 point, traders said.
In late action, Greater Orlando Aviation Authority AMT insured 6-3/8s of 2021 were quoted at 97-1/4-1/2 to yield 6.58%, New York State Power Authority 6-1/4s of 2023 were quoted at 97-1/4-5/8 to yield 6.45%, and South Carolina PSA 6-5/8s of 2031 were quoted at 98-7/8-99-1/8 to yield 6.47%. California 6-1/4s of 2012 were quoted at 97-1/2-5/8 to yield 6.47% and Oklahoma Turnpike Authority MBIA 6-1/4s of 2022 were quoted at 97-7/8-98 to yield 6.40%.
Note traders reported a busy morning in the short-term sector with prices remaining in a range. By early this afternoon, activity had subsided.
Late in the session, California Rans 3-1/4s were quoted at 3.24% bid, 3.20% offered; Los Angeles Trans 5-1/4s were quoted at 3.24% bid, 3.20% offered; Pennsylvania Tans 5s were quoted at 3.45% bid, 3.40% offered; and New York State Trans 3.65s were quoted at 3.00% bid, 2.95% offered.