Prices were 1/4 to 1/2 point lower Friday with Treasuries, while the market cowered in front of a formidable $6.7 billion of new issues expected to be priced this week.
The credit markets opened weaker Friday, even though inflation data appeared favorable.
The producer price index for finished goods inched up 0.1% in August, gust, following advances of 0.1% in July and 0.2% in June, the Labor Department reported on Friday morning. The core rate of inflation, excluding food and energy, slipped 0.1% after a 0.2% rise in July.
Despite the favorable data, Treasury traders took profits. That developed into a strong selloff, and the 30-year bond settled down more than 1/2 point.
Municipals lost ground in tandem, although bid-wanted activity was minimal, traders said. Dollar bonds led the market lower, losing 1/4 to 1/2 point on average, but as much as 5/8 point in spots.
In the debt futures market, the December municipal contract settled down 15/32, to 97.14.
The December MOB spread was calculated at negative 272 compared to negative 283 Thursday as the government lost more ground than municipals.
Traders noted that there has been a large buyer of the MUT spread, the municipal contract minus the 10-year Treasury note contract, and that has lent support to the December municipal contract.
Traders said there was more MUT buying yesterday and the spread was calculated at negative 376, down 1/32 on the day.
By session's end, traders turned their attention to this week's heavy new-issue calendar and predicted that yields would likely move higher over the course of the week, unless the Treasury market is strong enough to buoy tax-exempts.
"In a bull market we can usually digest that many bonds, but in a bearish market we're going to have some trouble," a trader said late Friday. "Success or failure is based on Treasury performance, so it's one of those markets where it's hard to have conviction in either direction."
The Bond Buyer's tally of 30-day visible supply jumped to $7.35 billion. The negotiated component totaled $6.35 billion, its highest level since late 1985.
Approximately $6.7 billion of that total is expected to be priced this week, the highest estimate since Nov. 22, 1991, when sales for a one-week period totaled $6.77 billion. Supply estimates this week include 16 deals totaling $1.22 billion which are on a "day-to-day" sales basis.
The negotiated slate features several sizable offerings, including $-700 million of Washington Public Power Supply System refunding revenue bonds, to be priced by the First Boston Corp.; $666 million of New York Metropolitan Transit Authority transit facilities revenue bonds, to be priced by Dillon, Read & Co.; and $530 million of Ohio Water Development Authority revenue refunding bonds, to be priced by Goldman, Sachs & Co.
Colorado plans to market u to $300 million of tax and revenue anticipation notes Wednesday. Sept. 16, according to Virginia Wagner, portfolio manager for the state. Dain Bosworth Inc. will serve as senior manager.
Traders reported a mostly lack-luster trading session, although bids were hit hard on some dollar bonds.
Puerto Rico GO 6s of 2014 fell about 5/8 point on the day, quoted late in the session at 96 3/8-5/8, to yield approximately 6.30% on the bid-side. In other dollar bond trading, Chicago AMBAC 5 7/8s of 2022 were quoted at 95 1/8-1/4, to yield 6.23%; Florida Board of Education 6s of 2022 were quoted at 98 1/4-3/4, to yield 6.12%; and Los Angeles Department of Water and Power 6s of 2032 were quoted at 97-1/2, to yield 6.20%. New York City Water Authority 6s of 2017 were quoted at 95-1/8 to yield 6.40%.
In follow-through business, PaineWebber Inc., senior manager for $417 million of Illinois "Build Illinois" sales tax revenue refunding bonds, freed the issue to trade.
In late action, the 5 1/2s of 2020 were quoted at 90 1/8-1/4, to yield 6.25% on the bid-side. The bonds were originally offered to investors at 6.202%.
Pryor, McClendon, Counts & Co. freed $390 million of Denver Airport System revenue bonds from syndicate restrictions.
In late secondary trading, the 6 3/4s of 2022 were quoted at 96 7/8-lock, to yield 7%. The original reoffering yield was 6.95%.
In the short-term note market, yields were mostly unchanged on the day, traders said.
Now York to Sell GOs
State Comptroller Edward V. Regan said on Friday that the state will sell about $190 million of GOs on Sept. 23 through competitive auction.
The bonds will be dated Sept. 15 and will mature serially over one to 20 years, Mr. Regan said. Proceeds from the bond sale will be used for various capital construction purposes and also to redeem outstanding bond anticipation notes sold for the Environmental Quality Bond Act of 1972.