Municipals resisted downward pressure yesterday, supported by superior technicals, but traders periodically glanced over their shoulders at a wavering dollar, a potential land mine for bonds.

Treasury prices slid nearly 1/2 point yesterday, continuing a technical correction begun Friday when profit takers pushed the 30-year bond down 7/16, to yield 7.62%, despite a favorable inflation report.

Municipal prices held their ground Friday, posting some gains, and closed unchanged to down only 1/8 point in spots yesterday, traders said. As a result, the MOB spread narrowed for the second session in a row, moving to negative 145 from negative 153 Friday.

Although the tone remained solid and most market observers have called for lower interest rates, several traders yesterday described a nervous market psychology.

"Everything is in limbo right now," one trader said. "We're feeling overbought and the high levels make people nervous."

Other market players said there should be investors who will support prices at slightly lower levels and favor a marginal correction.

"There must be a lot of accounts that missed the rally with cash they'd like to put to work at lower levels," another trader said. "Right now the smart money looks to quality spread and value trades, but mostly stays invested."

The Street will look to today's retail sales and consumer price reports for near-term direction.

June retail sales will show a 0.5% increase, following the 0.1% gain in May, according to 13 economists surveyed by The Bond Buyer. Individual forecasts ranged from a 0.2% increase to a 1% rise.

With little else to focus on, market players cocked one eye on the Democratic National Convention and another on an ailing dollar, watching vigilantly for signs of trouble.

"If the dollar continues to slide, it will be bad for bond prices," one trader said. "That is the likeliest place for trouble to brew right now."

Meanwhile, market activity was listless yesterday.

In the primary sector, a syndicate led by Smith Barney, Harris Upham & Co. priced $155 million of Tucson Unified School District No. 1 improvement and refunding bonds.

The noncallable offering included $110 million of school improvement bonds, priced to yield from 3.75% in 1994 to 6.15% in 2012, and $83 million of refunding bonds, priced to yield from 2.75% in 1993 to 6.10% in 2010.

The issue is insured by the Financial Guaranty Insurance Co. and triple-A rated by Moody's Investors Service, Standard & Poor's Corp., and Fitch Investors Service.

In light competitive action, $76 million of Colorado Springs Utilities Systems refunding revenue bonds were won by a syndicate led by Bear, Stearns & Co. with a true interest cost of 6.192%.

The firm reported an unsold balance of $2.6 million late in the session.

The bonds were reoffered to investors at yields ranging from 3% in 1993 to 6.05% in 2012. A 2018 term was priced as 6s to yield 6.155% and a 2020 term, containing $31 million of the loan, was priced as 6 1/8s to yield 6.172%.

The issue is rated double-A by Moody's and Standard & Poor's.

In follow-up business, Bear Stearns freed $512 million of Salt River Agricultural Improvement and Power District Salt River Project electric system revenue bonds from syndicate restrictions.

In late secondary trading, the 5 1/2s of 2025 were quoted at 89 7/8-90 1/8 to yield approximately 6.22% on the bid side. They were originally priced to yield 6.228% and are rated double-A by Moody's and Standard & Poor's.

Merrill Lynch & Co., senior manager for $353 million of Michigan State line fund bonds and state trunk line refunding bonds, freed the issue from syndicate restrictions.

In late trading, the 5 1/2s of 2021 were quoted at 90 1/2-7/8 to yield 6.21% the bonds were originally priced to yield 6.20%.

Secondary activity was otherwise muted, except for some small bid-wanted lists, traders said. Several market sources reported that yields of some California paper with 6% coupons were one to two basis points higher in light trading.

In dollar bond trading, prices were quoted unchanged to 1/8 point lower.

In late action, New York City Water Authority 6.20s of 2021 were quoted at 99 1/4-1/2 to yield 6.25%, New Jersey Highway Authority AMBAC 6 1/4s of 2014 were quoted at 100 1/4-1/2 to yield 6.22%, and Texas Municipal Power Agency MBIA 5 3/4s of 2012 were quoted at 94 3/4-7/8 to yield 6.21%. New York Metropolitan Transit Authority MBIA 6 1/4s of 2017 were quoted at 100 1/8-1/2 to yield 6.24%.

Traders in the short-term sector said activity was muted yesterday with few large blocks of notes moving in the secondary sector. Prices were quoted mostly unchanged.

Although scheduled for pricing this week, a representative of Goldman, Sachs & Co. said late yesterday that $380 million of Iowa tax and revenue anticipation notes have been put on hold until at least Tuesday.

A lawsuit filed last week sought to block the sale, but was later quashed. However, a senior member of the Goldman Sachs short-term underwriting desk said yesterday that because of the possible implications of the lawsuit, the underwriter chose not to mail the preliminary official statement for the deal.

The firm said it intends to mail the preliminary statement today and sell the notes July 21.

In other secondary trading yesterday, Los Angeles Trans 3 3/4s were quoted at 2.95% bid, 2.92% offered; New York City tax anticipation 3 1/4s were quoted at 2.85% bid, 2.80% offered; San Bernadino Co., Calif., Trans were quoted at 3.15% bid, 3.10% offered; and New York State Trans 3.65s were quoted at 2.85% bid, 2.80% offered.

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