The days of choppy trading and gradual price erosion are likely to continue, players said Friday, at least until the October employment report is released at week's end.
Both the Treasury and municipal markets moved within a narrow range Friday, opening lower and ending about even on the day. The price trend of the past seven sessions has been driven by uncertainty about whether the economy is improving and rates are posied to reverse a long downward trend, or whether the economy is merely suffering from nervous tics.
Unfortunately, the credit markets have had no decisive signal either way. The result for municipals has been a retreat of many traditional institutional buyers, thanks in part to a slowing of investor cash flows, at the same time as supply spiked higher.
Dealers continue to hold an above-average number of bonds in their inventories, but upcoming supply appears to have slowed. Prices have stuck to a familiar range. Although that makes for difficult trading, it gives market players some sense of solid ground from which to make better decisions.
"That the market is stable is encouraging," a trader said Friday. "If this holds we can work off some of this supply. But it's tough. A lot of this inventory has big losses in it. We need a couple of days where the market does better to unload some bonds and free up our bidding power again."
Friday, The Blue List of dealer inventory slipped $42.6 million, to $2.04 billion. The list has now been over $2 billion for four consecutive days. That has not happened since the July 22 through July 30 period when it was between $2.05 billion and $2.2 billion. For October, The Blue List averaged $1.83 billion, up from $1.45 billion in September and $1.61 billion in August.
The Bond Buyer calculated 30-day visible supply Friday at $5.34 billion, up $1.17 billion from Thursday.
The competitive component of the 30-day visible supply has not been belowr $2 billion since Sept. 30 when it was $1.84 billion. It has exceeded the negotiated component for the past 13 business days. In October, the competitive portion averaged $3.08 billion, or 50% of the total 30-day visible supply average of $6.15 billion. Going back to 1927, the competitive component has never averaged $3 billion for a month.
The ebb of supply will leave market players watching economic data intently. They must gauge whether recent signs of improvement add up to overall strength. Employment data will be the most important. A weak jobs sector has continued to cage bearish market players who cite strength in other indicators such as the housing sector as true signs of an improving economy.
The October jobs report won't be released until Friday, so players will be left to ponder September construction spending, released today, followed by September leading indicators and single-family home sales tomorrow. Thursday, weekly jobless claims are due out, along with factory orders and inventories, as well as non-farm productivity.
As for this week's fresh supply, The Bond Buyer tabulated note and bond deals at $3.7 billion, the lowest since Sept. 3 when it totaled $3.62 billion.
The competitive sector is dominated by several sizable offerings, including $627 million Los Angeles Department of Water and Power, Calif., refunding revenue bonds; $430 million Salem County Pollution Control Finance Authority, N.J., refunding revenue bonds; and $190 million University of California certificates of participation.
The negotiated calendar features $202 million Orlando-Orange County Exposition Authority, Fla., junior lien revenue refunding bonds, to be priced by PaineWebber Inc.; $152 million Michigan State Hospital Finance Authority hospital revenue refunding bonds, to be priced by Goldman, Sachs & Co.; and $130 million Massachusetts Health and Education Facilities Authority revenue bonds, also to be priced by Goldman Sachs.
The markets opened unchanged and moved lower in light trading. They did little by session's end, except to trek back to where they began, traders said.
The tone weakened after the Chicago National Association of Purchasing Managers' survey increased to 57% in October, on a seasonally adjusted basis, from 54.5% in September.
An index reading below 50% signals a slowing economy, while a level above 50% suggests expansion.
The employment index of the survey inched higher, to 51.9% from 51.5% in September, reflecting a gradual improvement that the market has grown accustomed to.
Municipal traders said action was dull throughout the session and prices were mixed on the day.
In secondary dollar bond trading, Florida Board of Education 5 1/8S of 2022 were quoted at 96 7/8-97 1/4 to yield 5.33%; Los Angeles DEWAP 5s of 2033 were quoted 93-1/2 to yield 5.43%; and Valdez, Alaska 5 1/2S of 2028 were 98 1/2-7/8 to yield 5.50%. Atlanta Water and Sewer 4 3/4S of 2023 were quoted at 5.33% bid, 5.30% offered. New York City 5 1/2S of 2017 were quoted 5.79% and Salt River 4 3/4S of 2017 were 5.30% bid, none.
In the debt futures market, the December municipal contract settled down 3/32 to 103.26.
In the short-term note sector, yields were mixed on the day, traders said.
In late trading, California Rans were quoted at 2.70% bid, 2.65% offered; New York City Tans were quoted 2.58% bid, 2.55% offered; and Pennsylvania Tans were 2.70% bid, 2.65% offered.