Demand for bonds evaporated yesterday and market players braced for today's employment report, hoping it would stem a two-week price hemorrhage, rather than make matters worse.
After enduring punch after punch, the bid for municipal bonds finally hit the canvas, and panic set in, traders said yesterday. If the jobs report is bullish for the market, oversold prices are expected to snap back. But if the report shows a strengthening job sector, dealers said losses would become even worse.
"This is the worst I've seen the market and if the long Treasury bond can't hold 6.25%, we're going down another four points," one trader said late yesterday. "We're seeing redemptions from bond funds and the buyers are just not there."
The market began yesterday's session on a down note, dropping 1/4 point after initial state unemployment insurance claims fell 10,000 to a seasonally adjusted 338,000 in the week ended Oct. 30.
Traders said the market showed some "spunk," and tried to hold levels after initial claims were released. But that only lasted for about 15 minutes, they said, before prices began to fall. Also putting pressure on prices, U.S. non-farm productivity grew at a seasonally adjusted annual rate of 3.9% in the third quarter.
Traders reported a gloomy session with moderate bid-wanted flow totaling about $200 million, by one firm's estimates. Few bonds changed hands, however, as market players sought safety under their desks.
Near the end of New York trading, the 30-year Treasury bond took a steeper dive and was quoted down 44/32 to yield 6.203%. Tax-exempts closed down 3/4 to one point on average, traders said. But bonds were changing hands down two points easily, they added.
In secondary dollar bond trading, there were few two-sided markets quoted, but TBTA 5s of 2020 were quoted at 5.52% bid, 5.49% offered. In the debt futures market, the December municipal contract settled just off a low of 101.14, down 28/32 to 101.15. The MOB spread widened to negative 460 from negative 456 on Wednesday.
In the short-term note sector, yields were mixed on the day, traders said. In late action, California Rans were quoted at 2.67% bid, 2.65% offered; New York City Tans were quoted 2.72% bid, 2.67% offered; and Pennsylvania Tans were 2.65% bid, 2.60% offered.
In light new issue activity in the competitive sector, Merrill Lynch & Co. won $145 million Salem County Pollution Control Finance Authority, N.J., pollution control revenue refunding bonds, bidding a true interest cost of 5.664%.
The firm said all bonds were sold by session's end. The bonds were re-offered to investors at par to yield 5.55% in 2033.
The bonds are insured by the Municipal Bond Investors Assurance Corp., and rated triple-A by Moody's investors Service and Standard & Poor's Corp.
Topping the negotiated sector, Goldman, Sachs & Co. priced, repriced, and restructured $130 million Massachusetts Health and Educational Facilities Authority revenue bonds for Boston College.
At the repricing, yields were lowered by 10 basis points in 1994 and a 2018 term maturity was added to the scale. The firm said it received the verbal award.
The final offering included serial bonds priced to yield from 2.70% in 1994 to 5.40% in 201 0. A 2014 term, containing $19 million, was priced as 5 3/8S to yield 5.50%; a 2018 term was priced as 5 1/4S to yield 5.648%; and a 2023 term, containing $37 million, was priced as 5 1/4S to yield 5.634%.
Bonds from 2008 through 2010 and 2014 are non-callable. The deal is rated Al by Moody's and A-plus by Standard & Poor's.