Municipals ended 1/4 to 3/8 points lower overall Friday after a string of positive sessions earlier in the week.
"I think what you've got is a market that decided it was Friday and went home very early," one trader said. Another trader said Friday's quiet reminded him of a typical day before a holiday weekend.
Dollar bonds ended 3/8 point lower overall, while yields on high-grade issues rose about two basis points. Trading was on the light side of light to moderate, a municipal analyst said.
Friday's June MOB spread was negative 419, compared to negative 414 on Thursday. In the debt futures market, the June municipal contract settled down nearly a point to 91 29/32.
"We're watching the govie market, they're off," another trader said.
"We're reacting to Treasuries more than we usually do," the municipal analyst said of Friday's session.
Municipals outperformed Treasuries last week, but not by much, he said. The analyst added that tax exempts had started from lower levels.
Tuesday afternoon's market was "wonderful" right after the Federal Reserve raised both the federal funds rate and the discount rate by 50 basis points. Wednesday's market was also strong, and Thursday proved "a good, stable day" that also finished on the plus side. Monday's session was also positive.
"Really what's bothering our market right now is the lack of confidence," the analyst said, adding tax exempts likely would have held in Friday were it not for that lack.
In the prior three weeks the market has seen a lot that has shake its aplomb, not the least of which are apparent signs of illiquidity, he said.
Despite Friday's losses, municipals still ended 1 1/2 to two points better for the week, the analyst said.
In the primary market Friday, a Smith Barney Shearson group priced $110 million Incorporated County of Los Alamos New Mexico Utility System revenue bonds.
The FSA-insured offering contained serial bonds priced to yield from 4% in 1995 to 6.20% in 2010. A 2015 term, containing $39 million, was priced as 6s to yield 6.35%.
"We're in good shape," a syndicate source said, citing healthy retail, insurance company and trust department demand for the serials. Bond funds, mainly of the local variety, stepped up for the term, he said.
"The underwriters have been working on the deal for quite a period of time," the source said, adding that efforts had already begun on the deal before the market had started to decline in October.
"The utility had a savings target on this refunding and took advantage of a window of opportunity to get the deal done," he said.
The offering, which was not repriced, was priced at approximately noon, and was nearly all sold by 4 p.m. Eastern Daylight Time.
As for this week, the negotiated calendar features $150 million of Maryland Energy Finance Administration bonds through Lehman Brothers. The Metropolitan Pier and Exposition Authority is expected to sell a series of tax-exempt and taxable new money and refunding bonds through Smith Barney Shearson. The offerings total over $300 million.
The competitive slate features a $150 million Fairfax County, Va., deal.
In other news, total long-term new issue sales for last week were $2.25 billion, a significant decline from the previous week's $4.22 billion. That was also the lowest new issue volume since the week ended April 8 when sales totaled $1.36 billion. Negotiated sales were $1.36 billion versus $2.75 billion a week earlier. Competitive sales were $893 million compared with $923 million.
Anticipated sales for this week are $2.59 billion, comprising $2.04 billion in negotiated deals and $556 million competitive.
Standard & Poor's Corp. the Blue List was down $33 million on Friday to $1.48 billion.
The 30-day visible supply of municipal bonds for today totals $3,834.0 million, up $49.2 million from Friday. That comprises $1.54 billion of competitive bonds, which is up $364.3 million from Friday, and $2.28 billion of negotiated bonds, down $315.1 million from Friday.