Prices were slightly lower in dull trading yesterday as the market drifted ahead of this week's new-issue slate.
Municipals enjoyed a rally last week that helped the market through a mass of new issues.
But momentum slowed on Friday, exacerbated by a severe winter storm that disrupted trading in New York City.
The slowdown continued yesterday, and prices moved slightly lower in apathetic trading.
Traders quoted cash prices unchanged to down 1/8 to 1/4 point in spots near the end of the day.
In the debt futures market, the March municipal contract settled down 10/32 to 96.10. The March MOB spread widened to negative 242 from negative 240 Friday.
The sputtering price rise prompted many traders to speculate about whether the market is overbought and due for a correction.
"It's very quiet and there is an ominous feeling that supply could suddenly jump," one trader said. "There's been a pause in the rally and it seems like we have a trade down 1/2 point and then take a look at where we go from there."
Adding to the confusion, the secondary market has begun to wind down, as some market players bow out of active trading until the beginning of the new year.
Municipals historically move lower in a vacuum. That and the fear of a supply surge caused market tone to become shaky at the end of trading yesterday.
Despite the trepidation, a number of market players said they believe, in general, that the market will wade handily through supply over the long-term.
Demand is expected to remain strong as billions in redemptions and other annual payments flood investor pockets Jan. 1 at the same time supply begins to dwindle.
But, in the short-term, market players were waiting to see if any sizable refunding deals suddenly hit the market before the end of the year, and just exactly how much investor demand is waiting in the wings.
The Bond Buyer calculated 30-day visible supply at $4.97 billion yesterday, down from $6.7 billion Friday. Secondary supply remained heavy, meanwhile, as The Blue List of dealer inventory rose $16.9 million to $1.6 billion.
Looking to this week's calendars, the negotiated sector is dominated by $450 million of Orlando Utility Commission, Fla., water and electric revenue refunding bonds to be priced by Bear, Stearns & Co.; $303 million of New York Local Government Assistance Corp. general obligation bonds to be priced by Lehman Brothers; and $270 million of New Jersey Housing and Mortgage Finance Agency multifamily revenue bonds also to be priced by Lehman.
The competitive sector is dominated by $138 million of Fairfax County, Va., improvement refunding bonds and $100 million of Pendleton County, Ky., revenue bonds.
Depending upon the tenor of the market, however, other sizable deals could appear, including more than $1.6 million of New Jersey refunding bonds.
Market players speculated the issue could be priced on Thursday.
In light new-issue activity yesterday, PaineWebber Inc. period and repriced $75 million California Higher Education Loan Authority Inc., student loan revenue and refunding bonds, subject to the federal alternative minimum tax.
At the repricing, Series E-2 yields were raised by five basis points from 2002 through 2006. The Series E-4 yield was raised by 10 basis points.
The final offering included $62 million student loan revenue bonds Senior Series E-2 bonds priced at par to yield from 5.70% in 1998 to 6.55% in 2006.
About $6 million senior subordinated Series E-3 bonds were priced to yield 6.70% in 2008. About $6 million subordinated Series E-4 bonds were priced at par to yield 7% in 2010.
The Series E-2 bonds are rated Aaa by Moody's Investors Service, the Series E-3 bonds are rated Aa by Moody's and the Series E-4 bonds are rated A by Moody's.
Morgan, Stanley & Co. priced and repriced $70 million water and sewer revenue refunding bonds for Seminole County, Fla.
At the repricing, yields were raised by five basis points in 1999, 2000, and 2001. The yield on the 2009 term maturity was lowered by about one basis point.
The final reoffering scale included serial bonds priced to yield from 2.75% in 1993 to 6% in 2007. A 2009 term was priced as 6s to yield 6.04%; a 2012 term was priced as 6s to yield 6.09%; and a 2019 term, containing $25 million of the loan, was priced as 6s to yield 6.13%.
The bonds are insured by the Municipal Bond Investors Assurance Corp. and triple-A rated by Moody's and Standard & Poor's Corp.
In follow-through business, Smith Barney, Harris Upham & Co. freed $879 million Metropolitan Pier and Exposition Authority McCormick Place expansion project bonds from syndicate restrictions.
In late secondary trading, maximum term bonds, the 6 1/2 of 2027, were quoted trading at 99 5/8-bid soon after they were freed to trade. By session's end, the same bond was quoted at 99 3/8-lock to yield 6.54% on the bid-side. The bonds were originally priced to yield 6.564%.
Some traders said they were busy selling bonds from new deals, priced last week, to permanent investors, but the secondary was mostly quiet.
Traders did report some small bid-lists circulating in the secondary and retail bids were said to be firm.
In secondary dollar bond trading, prices were quoted unchanged to down as much as 3/8 point in spots, but 1/8 to 1/4 point on average. Triborough Bridge and Tunnel Authority 6 1/8s of 2021 were quoted at 99 1/8-1/4 to yield 6.19%; Brazos River Authority, Tex., AMBAC AMT 6 1/2s of 2027 were quoted at 99 5/8-7/8 to yield 6.527%; and Houston 6 3/8s of 2014 were quoted at 99 1/4-3/4 to yield 6.25%.
MBTA 6.10s of 2023 were quoted at 96 1/4-1/2 to yield 6.38%; Georgia MEAG 6 3/8s of 2016 were quoted at 99 5/8-100 to yield 6.40%; and North Carolina Catawba 6 1/4s of 2013 were quoted at 98 7/8-99 1/4 to yield 6.34%. Denver Airport AMT 6 3/4s of 2022 were quoted at 95 3/8-1/2 to yield 6.79%.
In short-term note trading, most notes were unchanged, but yields on some names feel five to 10 basis points, traders said.
In late action, notes of Los Angeles, New Jersey, and Pennsylvania were quoted at 2.45% bid, 2.40% offered.