Municipal prices advanced 1/4 to 3/8 point on Friday, thanks to a weaker-than-expected Chicago Purchasing Managers' report, and the market will now turn to this Friday's employment data for a new clue to the economy's health.
The U.S. index of leading economic indicators advanced 0.8% in May for the fourth consecutive monthly increase, but April was revised down to 0.4%, originally reported as a 0.6% increase. Municipals ignored the news and actually improved slightly with Treasury prices in the morning.
But when the Chicagoland Business Barometer showed a decline to 47.6% in June from 49.2% in May, market players were caught by surprise and prices moved higher, with traders reporting moderate business with a very firm tone.
The September municipal futures contract settled up 17/32 to 91.04.
In light activity inthe primary sector, Goldman, Sachs & Co. as senior manager for $384 million Triborough Bridge and Tunnel Authority general purpose revenue bonds, freed the issue from syndicate restrictions. The Tribe 7s of 202 were quoted up 1/2 point from the original net in secondary trading late Friday at 97 3/4 - 97 3/4 to yield approximately 7.186%.
PainWebber Inc. as senior manager for $248 million Pittsburgh Water and Sewer Authority water and sewer system revenue refunding bonds, freed the term bonds from syndicate restrictions. The 6 3/4s of 2010 were quoted at 97 1/8 - 3/8 to yield approximately 7.002%.
Merrill Lynch & Co. as senior manager for $216 million California Housing Finance Agency home mortgage revenue bonds, reported all bonds sold.
Meanwhile, in the short-term note sector, yields rose about five basis points after some selling pressure.
March New York State Trans were quoted at 5.20% bid, 5.15% offered, while December New York State Trans were quoted at 4.85% bid, 4.75% offered
Looking ahead, traders said they expect prices to remain stable ahead of June employment data, to be released Friday.
Lawrence Krohn, senior economist at Lehman Brothers, said that he expects a 25,000 increase in employment based on initial claims data.
"The data will be enough to confirm a recovery, but nothing to get too excited about," he said Friday. "It's will be well below the norm for a post-war recovery. The number and subsequent data will tell us that the economy will continue to grow, but not robustly."
Mr. Krohn added that it appears the economy is on it's way, but that there still remains an outside chance for a double-dip. "The Chicago Purchasing report says the Midwest economy may have lost a little," he said. "The economy is still vulnerable to shock, and higher interest rates could do it."
The economic calendar this week also features May construction figures, to be released today, followed by May factory orders tommorrow. Wednesday, single-family home sales for May are due out. Initial jobless claims for the week ending June 22 will also be reported on Friday.
Looking ahead to supply during the Independence Day-shortened week, the negotiated new issue slate is dominate by $37 million Solano Co., Calif. certificates of participation, to be priced by Grigsby Brandford Powell as senior manager.
The competitive slate features $39 million Baltimore Co., Md., various purpose refunding bonds.