Bullish sentiment protected tax-exempts from a Treasury sell-off Friday, and market players expected strong investor demand to bolster prices of $3.8 billion of new issues this week.
The credit markets enjoyed a one-point rally Thursday. Municipals were higher for the fourth session in a row, gaining an extra boost as investors laden with cash from the massive July 1 redemptions chased after a limited amount of available bonds.
On Friday Treasuries sank after the Commerce Department reported that in June new orders for durable goods rose 2.3%, to $122.5 billion, on gains in all major industries except instruments and related products.
Municipal prices, however, held in as the light supply and strong demand supported prices.
Traders reported some blocks of bonds out for the bid as a number of market players took profits ahead of the weekend, but the tone remained bullish.
By session's end, dollar bonds were quoted unchanged to up 1/8 to 1/4 point, while high-grade yields were said to have fallen by about five basis points on average.
In the debt futures market, the September municipal contract settled down 2/32 to 99.04.
Looking to this week's action, the market will take on more supply that it has in recent weeks. The Street expected the new deals to continue to be priced aggressively by underwriters as demand outstrips supply.
The Bond Buyer calculated 30-day visible supply at $4.74 billion Friday while The Blue List, sometimes used as an approximate measure of secondary dealer holdings, slipped to a paltry $879 million.
The negotiated slate features several sizable deals, including $300 million of Wisconsin transportation refunding and new money bonds, to be priced by First Boston Corp., and $320 million of San Antonio general improvement bonds, to be priced by PaineWebber Inc.
Also featured are $300 million of Florida Municipal Power Agency refunding revenue bonds, to be priced by Goldman, Sachs & Co., and $265 million of Pennsylvania State University revenue refunding and new-money bonds, to be priced by Mellon Bank.
The competitive new-issue calendar features $319 million of Missouri various refunding bonds and $124 million of Rhode Island Providence plantations consolidated capital development loan full faith and credit bonds.
Meanwhile, the economic calendar features few significant reports. Initial jobless claims for the week ended July 18 and single-family home sales for June will be released Thursday. On Friday, factory orders and inventories for June will be reported, as will personal income and spending data for June.
Trading was moderate during the early part of the session, but market players reported some blocks of bonds changing hands at higher price levels.
Action included $4 million of Virginia general obligation 6s of 2012, which were out for the bid at 5.75%, but reportedly failed to trade; $4 million Caine County, Ill., Building MBIA 6 1/2s of 2010, which were offered at 6.03%; and a block of New Jersey GO 6.10s of 1999, which were priced to yield 4.88%, but reportedly did not trade.
In other secondary dollar bond trading, prices were quoted unchanged to up 1/8 to 1/4 point in spots.
In late action, New Jersey Turnpike Authority 6 1/2 of 2016 were quoted at 106 1/2-3/4 to yield 5.98% on the bid-side, Texas Municipal Power Authority MBIA insured 5 3/4s of 2012 were quoted at 97 1/2-1/4 to yield 5.99%, and Salt River, Ariz., 5 3/4s of 2019 were quoted at 96 1/2-97 to yield 6.01%.
In the short-term note sector, yields were unchanged to as much as 10 basis points lower for some actively traded names.