Prices gave a muted response Friday to a favorable employment report, but market players still stuck by their predictions that prices would move higher in July.
The civilian unemployment rate grew by 0.1 percentage point, to 7.0%, in June as nonfarm job growth registered only a slight 13,000 gain.
The report reaffirmed the view that the economy is only plodding along, which is usually good news for bond prices.
June's small increase in nonfarm jobs follows a revised 215,000 surge in May and an almost identical increase in April. The revisions had no effect on the credit markets.
Despite the report's indications of a weak economy, bond prices popped only slightly, then settled back to unchanged where they sat for the rest of the session.
Treasury market players drove the 30-year bond up 1/4 after the employment report was released, but then quickly sold long bonds and bought the short-end of the curve, traders said.
By mid-morning, tax-exempt action had turned listless. Players said the July 4th holiday took the wind out of the market's sails.
"The employment report held good numbers for the market, but nothing really happened," said one trader. "It's a function of the holiday. People looked at the numbers, made a few adjustments, and went home."
Futures trading closed at 1 p.m., EDT, and the September municipal contract settled up 7/32, at 102.16. The September MOB spread widened to negative 373 from negative 372 on Thursday.
Cash prices were quoted unchanged to up 1/8 point in spots.
Several market players expressed concern about rising gold and commodities prices and the possibility that the Federal Reserve might tighten monetary policy.
They said that although it is hard to argue against the current market conditions, signs of higher inflation are always worrisome, especially after the recent price run-up.
But market players generally agreed prices would enjoy at least one more push higher, thanks mostly to the billions of dollars in July 1 bond calls, payments and retirements. Supply has been on the decrease, also a boost for bond prices, especially at a time when demand is expected to rise.
"The fundamentals are excellent, and we should see a strong market through July," said James L. Kochan, head of fixed-income research at Robert W. Baird. "We may have to move sideways for a bit, but any fears of a Fed tightening should have gone out the window with this [last] week's economic numbers."
Beside the holiday doldrums, Kochan blamed the sideways move on end-of-the quarter sluggishness and the perception that the market may be a little overbought in the primary sector."
Looking ahead, supply remains light compared with levels in the early part of the year.
The Bond Buyer calculated 30-day visible supply Friday at $4.59 billion. Secondary supply spiked higher, reflected by The Blue List of dealer inventory, which rose $133 million, to $1.76 billion.
Only $3 billion of new bond and note deals are expected to be priced this week, although sizable offerings are said to be in the wings, including issues from New York City, Georgia, and the North Carolina Eastern Municipal Power Agency.
This week's negotiated sector is dominated by only a few sizable offerings.
The negotiated sector features $400 million New York State Local Government Assistant Corp. refunding revenue bonds, to be priced by Goldman, Sachs & Co.; $142 million St. Louts Municipal Financial Corp. leasehold revenue refunding bonds, to be priced by Prudential Securities; and $120 million San Bernardino County Tansportation Authority, Calif., sales tax revenue bonds, to be priced by First Boston Corp.
The economic calendar holds few obstacles for bonds.
U.S. automakers report tomorrow on new car sales in June, and the Federal Reserve reports on consumer credit in June. On Friday, the Fed releases the minutes of the Federal Open Market Committee meeting in May.
Traders reported a few blocks of bonds changing hands at the opening and some minor bid-wanted activity. Action had all but died out by mid-day.
In secondary dollar bond trading, prices were narrowly mixed, with some bonds posting 1/2 point gains, while others were unchanged to 1/8 point lower.
In late action, Pennsylvania COP AMBAC 5s of 2015 were quoted at 92 3/8-5/8 to yield 5.60%; Puerto Rico Public Improvement 5 1/4s of 2018 were quoted at 94 3/8-5/8 to yield 5.67%; and Omaha PPD 5 1/2s of 2017 were quoted at 98 1/2-3/4 to yield 5.61%.
Orange and Orlando FGIC 5 1/2s of 2018 were quoted at 5.61% bid, 5.60% offered; Washington Public Power Supply System MBIA 5.70s of 2017 were quoted at 99 1/4-5/8 to yield 5.75%; and Chicago GO FGIC 5 5/8s of 2023 were quoted at 98 1/4-1/2 to yield 5.74%.
In short-term note trading, yields were unchanged to three basis points higher on the day in light action.
Near the end of trading, Los Angeles County notes were quoted at 2.55% bid, 2.54% offered; New York State Trans were quoted at 2.15% bid, 2.13% offered; and Wisconsin notes were quoted at 2.58% bid, 2.55% offered.