Yields on The Bond Buyer's municipal bond indexes reported modest declines this week.
The drop was attributed to bond prices firming on hopes of another Federal Reserve Board easing. As the week progressed, prices hovered while the market searched for a definite sense of where the economy was headed.
The 20-bond index of general obligation bonds declined five basis points, to 6.52% from 6.57% a week ago. The 11-bond index was down four basis points, to 6.41% from 6.45%.
The 30-year revenue bond index's yield dropped four basis points, to 6.69% from 6.73%.
The average yield to maturity of the 40-bond daily Municipal Bond Index fell three basis points, to 6.61% from 6.64%.
Municipals performed slightly better than governments, as the 30-year Treasury bond's yield was unchanged at 7.87%.
In the short-term municipal market, The Bond Buyer's one-year note index declined eight basis points, to 3.28% from 3.36% last week.
Hopes for lower interest rates rose late last week, based on Friday's unemployment data and a shrinking money supply.
Market participants believe that such indications of an ailing recovery may spur the Federal Reserve to reduce interest rates.
Last Friday's 68,000 rise in non-farm payroll employment in May was less than the 95,000 increase that had been expected and pushed the nation's unemployment rate higher, to 7.5% from 7.2%.
Monday of this week began with the municipal market mirroring a skeptical Treasury market. Municipal Trading was described as almost comatose on Monday afternoon as the market braced for more than $4 billion of bond pricings for the week.
Both markets decided to wait for yesterday's retail sales report before taking a direction. Weaker-than-expected retail sales data gave municipals a lift yesterday.
Despite the heavy slate of new issues coming in the first two weeks of June, participants expect investor demand to keep up because up to $8 billion of bonds are expected to be called for redemption on July 1.
Secondary-market traders said they would look to the results of new deals for direction, and barring any surprising economic indicators, most market players were bullish on near-term prospect for prices.
That bullishness was justified in the early going, as tax-exempt prices were able to hold steady and pull free of the drag of an illiquid U.S. government market despite a flood of $3 billion in new municipal issues on Tuesday and $1.5 billion on Wednesday.
"We pretty much ignored the government market's dip," a trading desk manager said. "There was a good deal of bonds priced, but they were aggressively priced and the market absorbed them."
"Issuers have been coming in as fast as they can, because it's ideal to price bonds because the funds are flush with money, and it's been an orderly process so far," one Wall Street trader said.