Municipal bond prices lost 1/4 to 3/8 of a point yesterday, as the market readied for a batch of fresh economic reports and today's $675 million New York State Medical Care Facilities Finance Authority issue.
A municipal trader described yesterday as "a typical quiet Monday," with prices down but "without a whole lot [of trading] to prove it."
"It doesn't seem like there's any real pressure to raise cash," he said.
As for Orange County, Calif., "people are confining it more to the immediate issues it will affect than to the market as a whole," another trader said, adding that players started to think that way late last week.
A municipal analyst yesterday said yields on high-grade issues rose by two basis points, while dollar bonds ended down 1/4 point. In debt futures, the March municipal contract closed down 6/32 to 83 27/32. Yesterday's March MOB spread was negative 481 compared to negative 496 on Friday.
Municipals outperformed the government market yesterday, where the benchmark 30-year bond ended down 22/32 to yield 7.91% as players pondered increased talk out of Washington about a middle- class tax cut.
"There isn't any talk of cuts on the spending side, and that's rattling the bond market," said Kathleen Camilli, chief economist at MFR Inc. Such a move "would be deficit widening, which would be bearish."
Also weighing on the market is inflation figures due out today and tomorrow, she said.
"The market is very worried about PPI," Camilli said, adding that she expects a 0.5% increase in the November producer price index, with the core rate up 0.4%.
"CPI should be a little bit better," she said, adding that she expects a 0.3% gain in both the overall and core rates when that data arrives tomorrow. Camilli's estimates for both PPI and CPI are in line with the consensus forecast, she said.
"The markets are very jittery about the price numbers because we did have soft numbers last month," she said. Camilli noted that the October producer price index fell by 0.5%, a reading much more bullish for bonds that the 0.1% increase the market had been expecting.
"So people are expecting that will be reversed with kind of a vengeance," she said.
However, Camilli doesn't see a Federal Reserve tightening just around the corner.
"We're not looking for a tightening this month," Camilli said. "We think the Fed will wait for the Jan. 31-Feb. 1 meeting before making another move," she said.
In addition to PPI and CPI, the market receives news on retail sales today, and on industrial production and capacity utilization tomorrow.
In the primary market, the New York State Medical Care Facilities Finance Authority is expected to bring a $675 million revenue bond deal to market through a Goldman, Sachs & Co. group today.
Price talk circulating yesterday had 10-year bonds with a 6.10% coupon priced to yield 6.15%, a 20-year term with a 6.75% coupon priced to yield 6.85%, and a 40-year term with a 6.90% coupon priced to yield 7.05%.
"I think that is reasonably full pricing," Ron Fielding, president and portfolio manager of the $1.8 billion Rochester Fund Municipals and the $500 million Rochester Portfolio Series Limited Term New York Municipal Fund.
"The intriguing thing about the paper is you can put in orders now and you won't be taking delivery until January 12, and that's a period of time when everybody expects to have a lot of money to re-invest because of the January 1 coupons and redemptions," Fielding said. "So in that sense, it's timed pretty well."
Fielding said the paper is high quality, having both FHA and AMBAC insurance, which is why it lacks much interest for him.
"The scavenger market has got a lot more value in it right now," he said, adding that his funds have been seeing "relatively modest inflows."
Fielding searches the secondary market for pieces of deals people need to get rid of before yearend and "more often than not it's a matching position to what we already own." He estimated that 10% of his portfolio is insured, but said much of that is a result of triple-B bonds being pre-refunded.
"I don't know if in the last six months we've bought any insured paper," he said.
Margaret D. Patel, a portfolio manager at the Advantage Municipal Bond Fund, said that while she has no New York money to invest at present, "I continue to think the muni market looks cheap across the board. It's still a buy."
The 30-day visible supply of municipal bonds yesterday totaled $3.32 billion, up $30.1 million from Friday.
That comprises $1.132 billion of competitive bonds, up $51.4 million from Friday, and $2.191 billion of negotiated bonds, down $21.3 million from Friday.
Standard & Poor's Corp's Blue List of Municipal bonds was down $1.6 million yesterday, to $1.383 billion.