Retail buying yesterday morning helped municipal bond prices end 1/4 to 3/8 point higher overall in light to moderate activity.
"I think the market is doing very well today," one municipal trader said, citing a "good amount of buyers." The trader attributed much of the improvement to thin supply.
Another trader said the relatively steady trading range displayed by tax-exempt bonds lately has made more investors more inclined to buy.
The trader also noted that bonds of two major issuers, Municipal Electric Authority of Georgia and Denver International Airport, have been trading better because much-anticipated downgrades are now out of the way.
Moody's Investors Service yesterday downgraded MEAG's senior lien bonds to A from A1 and subordinate lien bonds to Baa1 from A. The revision affects $3.8 billion of authority debt.
Standard & Poor's downgrades affected $4.4 billion of senior lien bonds, which were dropped to A plus from AA-minus, and $375 million of subordinate debt which was lowered to A/A-1 from A plus/A-1.
The MEAG bonds will still carry a negative outlook from Standard & Poor's, but were taken off CreditWatch, where the agency placed them in December.
As for Denver International, Moody's downgraded its revenue system debt to conditional Baa from conditional Baa1 on Wednesday. Because many market players had built the downgrade into the market, the price decline of Denver Airport bonds halted and stabilized by midweek.
A third trader said municipal prices in the long end rose enough to shave yields by five basis points in some cases.
"I think a lot of it's contract-related, arb-related,' he said.
An analyst said yields on high-graded issues fell two basis points overall yesterday, and by about three basis points on the long end. Dollar bonds moved up 3/8 point, he said.
In debt futures, the June municipal contract closed up 3/8 point to 91 13/32. Yesterday's June MOB spread was negative 419, down from negative 425 on Wednesday.
Some selling was also seen yesterday.
"There were a lot of lists out for the bid," a trader said, adding that much of the $200 million of bonds out for the bid appeared to come from mutual funds. A fair amount also appeared to be in the 10-to-15-year range, he said.
As for today's April employment figure, "From the way [the market] acted today it didn't seem like people were too concerned about it," the trader said. He noted "a lot of trading in the street for the day before a number."
How a particular employment figure will affect Treasuries municipals remains to be seen, the trader said. If the number is good for the economy but bad for bonds, it could prompt a Fed tightening which would help the currency problems that have been ailing the Treasury market of late.
If the number is good for bonds, it may diminish the Fed's tightening drive, leaving the currency problem.
Continued weakness in the dollar and volatility in the world currency markets has proved troubling for holders of dollar denominated bonds.
David Blitzer, chief economist at Standard & Poor's Corp., sees a flat employment rate at 6.5%. However he envisioned a healthy growth in non-farm jobs of about 250,000.
Blitzer doesn't think the report will contain anything that could lead to a quicker-than-expected tightening of monetary policy.
"It would have to be a really outlandish report to get the Fed to act." Blitzer said.
Recent concern over the dollar's weakness is also unlikely to spur the Fed to action.
"I don't think that there's anything in the currency situation that will make the Fed act immediately," Blitzer said.
Currency woes, however, could make a stronger case for the Federal Reserve to tighten monetary policy at its May 17 Federal Open Market Committee meeting, he said.
The dollar's troubles also make it more likely that the central bank will raise the discount rate by 50 basis points, in addition to a 25-basis-point rise in the federal funds rate.
Looking ahead to next week, the scheduled economic news includes the producer price index on Thursday and the consumer price index on Friday.
The negotiated calendar includes two MEAG offerings through CS First Boston totaling #369 million and a $305 million Puerto Rico deal through Smith Barney Shearson.
In other news, Standard & Poor's The Blue List total for yesterday was $1.73 billion, down $72 million from $1.02 billion Wednesday.
The 30-day visible supply for today totaled $4.982 billion, up $721 million from Thursday. It consists of $1.827 billion of competitive sales, up $18 million, and $3.155 billion of negotiated sales, up $703 million.