Prices failed to rally yesterday, despite favorable economic data and aggressive bids for new deals.
Some market players said the stall foreshadowed a short-term technical sell-off, possibly prompted by profit-taking ahead of Friday's employment report.
The municipal market has made steady gains for the past two weeks.
The upward move has been encouraged by the prospect of higher demand from a flood of investor cash from July 1 bond calls and various bond payments. At the same time, the volume of new issues in the market has fallen.
Yet the string of price gains flagged yesterday. Futures prices failed to extend their gains yesterday even though sales of new single-family homes plunged 21% in May, to a seasonally adjusted annual rate of 571,000, the lowest level in a year, the Commerce Department reported.
By session's end, tax-exempt bonds were quoted mostly unchanged to up only 1/8 point in spots.
In the debt futures market, the September municipal contract settled down 2/32 to 102.10. The September MOB spread widened to negative 374 from negative 372 Monday.
Government traders said they were reluctant to take on the 30-year Treasury bond at the already very low rate of 6.67%, especially ahead of the new employment report.
Municipal traders cited a lack of activity, but some conceded losses in the futures market yesterday raised the prospect of more selling impending.
"You have to be careful," one trader said. "If it's going to head lower, the contract will lead the way. You could see people sell off a little here."
Other market players are quick to point out that, with the technicals and fundamentals so soundly in the market's favor, prices are likely to remain in a range in dull trading until the holiday passes.
"Once the jobs data comes in and proves the weakness we're seeing in the economy then people who were waiting for a correction will jump back in," a trader said. "Most people are likely to just hang in because if you get out there's no way you're going to buy them back cheaper."
Most economic forecasts call for anemic gains in employment on Friday and a quick glance at forward supply shows a paltry slate.
The Bond Buyer calculated 30-day visible supply at $4.62 billion. Secondary supply increase slightly yesterday, but the number of bonds in the Street has been declining. The Blue List of dealer inventory rose $34.4 million, to $1.6 billion yesterday.
Despite the lethargy in the cash market, high-grade new issues were priced successfully at levels that were up 3/8 to 1/2 point on the day in spots, market players said.
Investors have eagerly snapped up high-grade new issues because they have a growing amount of cash to put to work for a decreasing number of specialty state issues.
Underwriters have thus been able to raise prices and still get deals done quickly, pleasing issuers who capture low borrowing costs.
For example, $300 million Florida Board of Education full faith and credit public education capital outlay bonds were offered to investors at prices that were anywhere from five basis points away from yesterday's generic triple-A scale to right on the scale.
A Dillon Read & Co. group won the issue with a true interest cost of 5.39372%. A Goldman, Sachs & Co. bidding group had the cover bid with a TIC of 5.4013%.
Despite the strong pricing, Dillon Read reported an unsold balance of about $62 million by session's end.
Serial bonds were reoffered to investors at yields ranging from 2.50% in 1994 to 4.85% in 2004 and from 5.20% in 2009 to 5.40% in 2014. A 2018 term was priced as 5.40s to yield 5.50% and a 2023 term, containing $87 million of the loan, was priced as 5 1/2s to yield 5.55%.
Serial bonds from 2005 through 2008 were not formally reoffered to investors.
The bonds are rated double-A by Moody's Investors Service, Standard & Poor's Corp., and Fitch Investors Service.
Topping the negotiated slate, Pennsylvania sold $763 million certificates of participation.
Prudential Securities Inc. as senior manager priced and repriced the issue.
At the repricing, yields were lowered by three basis points for serial bonds in 2010 and 2011 and for term bonds in 2015.
The final pricing included serial maturities priced to yield from 3.50% in 1995 to 5.675% in 201 1. A 2015 term, containing $145 million of the loan, was priced with a coupon of 5% to yield 5.625%.
The issue is insured by the AMBAC Indemnity Corp. and rated triple-A by Moody's and Standard & Poor's.
In other action, Lehman Brothers priced and repriced $70 million non-callable general obligation refunding bonds for Anchorage, Alaska.
The firm said it received the verbal award and lowered the 1993 yield by five basis points.
Serial bonds were priced to yield from 2.20% in 1993 to 5.50% in 2010. The bonds are MBIA-insured and rated triple-A by Moody's and Standard & Poor's.
In other competitive action, a Merrill Lynch & Co. group won $104 million Louisville & Jefferson County Metropolitan Sewer District, Ky., sewer and drainage system revenue bonds with a TIC of 5.49%.
The firm reported an unsold balance of about $18 million near the end of the day.
Serial bond yields were reoffered to investors at yields ranging from 3.60% in 1996 to 5.50% in 2019. A 2021 term was priced as 5 1/2s to yield 5.55% and a 2023 term was priced as 5 1/2s to yield 5.55%.
The bonds are insured by the Municipal Bond Investors Assurance Corp. and rated triple-A by Moody's and Standard & Poor's.
In short-term new issue action, Colorado awarded Goldman Sachs $350 million general fund tax and revenue anticipation notes.
The firm won $250 million of the notes with a net interest cost of 2.636% and $ 1 00 million of the issue with an NIC of 2.606%.
The Trans, due June 27, 1994, were reoffered to investors at 2.55% net. The issue is rated SP1-plus by Standard & Poor's and F1-plus by Fitch.
Traders reported steady bidwanted lists throughout most of the session, but few bonds were said to change hands as the market paused.
In secondary dollar bond trading, prices were quoted unchanged to 1/8 point higher in spots on average, traders said.
In late action, Puerto Rico Public Improvement 5 1/4s of 2018 were quoted at 99 1/4-3/8 to yield 5.30%; Omaha PPD 51/2s of 2017 were quoted at 98 3/8-5/8 to yield 5.62%; and New York City 6s of 2021 were quoted offered at 6.05%.