Aside from a brisk secondary market in Fed-sensitive crystal balls, little else was moving in municipals yesterday.

"It's ridiculously quiet," one trader said. "I'm doing absolutely nothing."

Players were waiting to see whether the Federal Reserve would tighten credit conditions in connection with today's Federal Open Market Committee meeting, and, if so, by how much. That uncertainty, combined with the usual Monday malaise, conspired to mute activity to a whisper, traders said. In secondary trading, both dollar bonds and high-grade issues ended unchanged in light trading. In debt futures, the September municipal contract dropped nearly 1/8 point to 90 17/32. Yesterday's September MOB spread was negative 386, compared to negative 389 on Friday.

One municipal trader said he wants a 50-basis point increase in both the federal funds and discount rates, and believes both are likely. Fifty-basis point increases are needed to "take the uncertainty out of the market," he said.

James Kochan, head of fixedincome asset management at Robert W. Baird & Co., also is expecting 50-basis point increases in both the federal funds rate and the discount rate.

Kochan noted that the Bank of Sweden and the Bank of Italy both raised rates last week, and that several factors on the economic front here point to the rate increases.

Several leading inflation indicators including the Journal of Commerce's Industrial Price Index and the Commodity Research Bureau's Index of commodities futures prices are also up. July employment and retail sales data also would support a credit tightening, Kochan said.

"All of this would suggest that the economy has a pretty good head of steam to it," Kochan said.

The last time the Fed moved, on May 17, it lifted the funds rate and the discount rate by 50 basis points each, so the same move this time around would not break a precedent, Kochan said.

In addition, considering the kind of criticism the Fed's move is likely to trigger from the Clinton Administration and others, it seems smarter to adjust rates in fewer, but larger, increments, he said.

While Kochan believes "there is a chance" that the Fed will do nothing, he pegs it at 25%, compared to a 75% chance for a tightening. He sees a 60% chance for a 50-basis point tightening, and a 40% chance for a 25-basis point tightening.

If the Fed does nothing, "I think at first you'll see a bit of a sell-off, [then] the front end will improve," Kochan said, adding that long rates would back up resulting in a steepening of the yield curve. If the Fed tightens by 50 basis points, the yield curve will flatten, with the front end getting cheaper and the long end holding up. For the long end, a 25-basis point adjustment would not bode well. "I think 25 would be a disappointment for the long end," Kochan said. Dominating this week's competitive calendar is California's offering tomorrow of $700 million of general obligation bonds.

"I don't have any room for it at the moment," said Jeremy Ragus, principal and portfolio manager of the $315 million Scudder California Tax Free Fund, adding "we don't care for callable par bonds."

Ragus also said he expected good retail demand for the California bonds. From a credit standpoint, Ragus said, the state appears to be rising from its low point, with the housing sector improving and cutbacks in the defense industry casing. He added that California has managed to get its budget balanced on an operating basis for the past two years.

In other news yesterday, the 30-day visible supply of municipal bonds totaled $4.19 billion, down $8 million from Friday. That comprised $2.54 billion of competitive bonds, up $138.7 million from Friday, and $1.65 billion of negotiated bonds, down $146.6 million from Friday. Standard & Poor's Blue List of municipal bonds was down $32.3 million yesterday to $1.78 billion.

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