The note sector shouldered over $1.7 billion in supply yesterday, while bond prices whipsawed after tumbling 1/2 point on disapointing economic data.
The producer price index rose 0.6% in May on a rebound in energy prices and strong tobacco and aircraft prices.
May retail sales surged 1% to a seasonally adjusted $152.5 billion on gains for most ypes of business.
Initial state unemployment insurance claims fell 38,000 to a seasonally adjusted 401,000 in the week ended June 1.
The news initially pushed Treasury prices down 3/4 with municipals off about 1/2 on average. But some off-the-run names were down as much as one point.
Later in the session, however, short-covering and the entrance of retail rallied Treasury prices and the market managed to make up all of its losses. Municipals, still choked with supply, managed only to retrace 1/4 in spots, while other names actually made slight gains, leaving prices mixed on the day.
In the debt futures market, the September municipal contract fell 12/32 right after the morning data were released, but settled up 8/32 to 89.22 with the September MOB spread settling at negative 90.
On the week, yields are up about 20 basis points, traders noted, forcing underwriters to price most product to sell.
"This was one of the weirdest days that I can recall," noted James Kochan, head of fixed-income research at Robert W. Baird & Co. "It makes sense that short-covering and the influx of retail interest could bring the bond back, but that doesn't detract from the fact that the data were disappointing. If something ugly hits tomorrow, I wouldn't be surprised if we're right back down."
But several traders argued that the market has already priced in today's data and that yields are headed back down.
Today, May consumer price index data, industrial production and capacity utilization data will be released.
In new-issue activity in the short-term note sector, an account led by Morgan, Stanley & Co. marketed $1.3 billion of Los Angeles Co., Calif., tax and revenue anticipation notes as 5s to yield 4.55% to their July 1, 1992 maturity date.
The notes are rated MIG-1 by Moody's Investors Service and SP1-plus by Standard & Poor's Corp.
An officer at Morgan Stanley said that there will be some Street float, but "not unwieldy." The officer termed the deal a "success" and noted that there was significant fund participation this year as opposed to previous years.
In other short-term activity, Wisconsin awarded $450 million operating notes to six firms.
First Boston Corp. took down about $200.5 million with a bid of 5% and reoffered the notes at 4.60% net. Smith Barney, Harris Upham & Co. took down $100 million with a bid of 5% and also reoffered the notes at 4.60% net. Merrill Lynch took $100 mil a bid of 5%. Dilon Read took $25 million with a bid of 5%, bud did not formally reoffer the notes, while First Winsconsin took down $20 million with a bid of 4.75%. Morgan Stanley took down only $5 million with a bid of 5.25%.
New bond issuance in the competitive sector was dominated by $236 million Columbus, Ohio various purpose GO bonds. The issue was won by four different firms.
A J.P. Morgan Securities Inc. group won $101 million unlimited tax sewer improvement bonds. The bonds are priced to yield from 5% in 1992 to 7% in 2011.
J.P. Morgan reported all bonds sold.
A First Boston Corp. group won $114 million various purpose unlimited tax bonds and reoffered them from 4.50% in 1992 to 7% in 2011.
First Boston said that no balance was available at session's end.
A Lehman Brothers group won $21 various purpose unlimited tax bonds and reoffered from 4.50% in 1992 to 6.90% in 2006 and 7% in 2011 and reported all bonds sold.
The entire issue is rated A1 by Moody's and AA-plus by Standard & Poor's.
In follow-through business, Lehman Brothers, senior manager for $150 million Washington State various purpose GO Bonds, reported all bonds sold and the account closed.
Morgan, Stanley, senior manager for $112.7 million Los Angeles, Calif., Wastewater System revenue bonds, reported an unsold balance of $14.4 million.
Dean Witter Reynolds, senior manager for $97.5 million Georgia Tollway Authority, guaranteed revenue bonds, reported an unsold balance of $18.9 million.
Bear, Stearns, senior manager for $81 million Maryland Transportation Authority, transportation facilities projects revenue bonds, reported an unsold balance of $12 million.
Dean Witter, also senior manager for $86.4 million New York State Medical Care Facilities Finance Agency, mental health servies improvement revenue bonds, reported an unsold balance of $14 million.
Goldman, Sachs, senior manager for $65 million Washington Suburban Sanitary District, Md., various purpose bonds, reported a combined unsold balance of $5 million.
Secondary bid-wanted flow was brisk in the morning and then tapered off during the afternoon, although some traders reported better activity during the afternoon, including a sizeable block of Florida Department of Natural Resources Preservation 2000 bonds, 6 3/4 of 2008, traded at 7.10%. Traders noted that New York City paper backed up slightly but then came back and is still trading around 8.50%. Market sources also said that Bridgeport, Conn., bonds were being offered around 8.35%.