Prices barely moved Friday after a week marred by an uncertain tone, which is likely to prevail this week until it's tested by the $5.9 billion of new deals.
Tax-exempts have hugged governments since market players lost the conviction that prices would continue their June rally sparked by increased demand from massive coupon payments and redemptions on July 1.
The Treasury market opened lower Friday, nagged by higher commodities prices. But, as in previous sessions, government securities prices overcame a sluggish tone to close higher on the day.
Municipal prices closed unchanged, but some bonds posted slight gains in sympathy with the Treasury market.
In the debt futures market, the September municipal contract settled Up 5/32 to 102.17.
Looking ahead at the economic calendar, the markets face important inflation reports.
Last week, bond prices were plagued by higher commodities prices. The economic reports this week will be closely watched for any signs of more inflation.
The June producer price report, will be released tomorrow, followed by the consumer price report on Wednesday.
By some estimates, PPI will fall 0.2%, while CPI could rise 0.1%.
But market players will watch the results of new issues even more closely.
The Street is hoping investors will show up in force for the new issues, proving the July uptrade is still in the cards.
Yet traders were skeptical Friday, and the uncertain tone remained.
"It's a big calendar, and we should get through it," said one trader. "But people aren't going to jump through hoops to get these deals.
"How rich will the deals come, that's the question everybody is asking," he said.
Even though investor demand may not be as robust as many had hoped, other players noted that the demand has been consistent enough to hold the market at or near its highs.
"Over the long term, you can't argue with the recent trend and that trend has been for higher prices," a trader said. "We're in a really good, strong, long uptrend and selling it here is just top picking. "
But until investors get some concrete reasons for a move higher or lower, prices will likely tag behind the Treasury market, locked into a narrow range, market players said.
"We're at the mercy of the Treasury market," said another trader. "We'll trade right along with them, but at a much less volatile pace, while we look at the new deals."
The Bond Buyer calculated this week's new issue volume at $5.9 billion of bond and note deals.
The negotiated slate is dominated by the week's biggest deals, including $806 million Puerto Rico Highway and Transportation Authority new money and refunding revenue bonds, to be priced by Merrill Lynch & Co.; $600 million Georgia general obligation, to be priced by First Boston Corp.; and $400 million Washington Public Power Supply System refunding revenue bonds, to be priced by Goldman, Sachs & Co.
The competitive sector features fewer sizable deals than the negotiated sector, but $175 million Connecticut GOs will test the high-grade sector.
Looking further ahead to supply, The Bond Buyer calculated 30-day visible supply at $6.30 billion, down slightly from $6.5 billion Thursday.
Action was muted for at least the fifth session in a row on Friday as market players waited for signals from the new issue sector.
In follow-through business, Goldman freed $640 million New York Local Government Assistance Corp. refunding bonds from syndicate restrictions.
In late secondary trading, the 5 1/2s of 2017 were quoted at 5.63% net, less 1/4, where they were originally priced to yield 5.63%. The 5 1/2s of 2018 were quoted at 5.70% bid, less 1/4, less 1/8.
In other new issue action, Prudential Securities pulled $145 million St. Louis Municipal Finance Corp. refunding bonds from the market Friday.
A Prudential executive said negative arbitrage forced the deal off the market. It was tentatively priced with a maximum yield of 5.85% in 2012 on Thursday. The executive said the deal is back on the day-to-day sales list.
In other secondary dollar bond trading, prices were quoted unchanged to up 1/8 to 1/4 point in spots.
In late action, SCPPA MBIA 5s of 2022 were quoted at yield 5.54%; MBTA MBIA 5 1/2s of 2022 were quoted at 98 3/8-1/2 to yield 5.61%; and Pennsylvania COP AMBAC 5s of 2015 were quoted at to yield 5.59%.
In the short-term market, yields were 10 to 13 basis points higher on the day.
In late trading, Los Angeles notes were trading 2.72% bid, 2.70% offered; New York State notes were quoted at 2.25% bid, 2.23% offered; Texas notes were quoted at 2.25% bid, 2.23% offered; and Wisconsin notes were quoted at 2.67% bid, 2.65% offered.
New York City Issue
New York City officials are planning to issue refunding bonds sometime during the first half of fiscal 1994, taking advantage of an amendment passed last week by the New York State legislature that allows the city to extend the "useful life" of some capital projects.
The amendment basically allows the city to finance certain capital projects with bonds that mature in 10 years and 15 years, instead of the 5 years that was previously required by the local finance law.
City officials say the amendment allows the city to better match bond maturities with the asset lives of these projects.
In addition to obtaining lower debt service costs on future bond deals, the amendment provides the city with the opportunity to stretch out the debt service payments of bonds previously sold with maturities of one to five years through a refunding of these securities with bonds maturing in 10 or 15 years.
The city's financial plan for fiscal 1994, which began July 1, calls for $50 million in debt service savings through such a refunding. Officials at Standard & Poor's, which rates the city bonds A-minus with a negative outlook, said the refunding would not put in danger the city's bond rating.
City officials say the refunding could be part of a larger refunding of debt to take place possibly in September or October. The city will ask its seven-firm senior management team for refunding ideas. The deal will probably be smaller than the city's usual $750 million to $1 billion bond refundings, a city official said.