Prices were flat Friday, but the tone was bullish as the market settled into a holiday mode with few obstacles ahead.
Traders reported a more active session than is typical of Fridays, although prices were generally unchanged on the day.
In the debt futures market, the September municipal contract settled up 10/32 to 102.03.
Futures dropped initially because traders were disappointed there was no follow-through after the Senate passed the deficit reduction package.
But traders said the bullish tone was hard to argue with. The market continues to anticipate price gains from the billions in investor cash from July 1 bond calls and redemptions, which would come at the same time as supply is tapering off.
The government market has also lent tax-exempts confidence as it holds at the highs with the long bond flirting with a new trading range just beyond 6.70%. The 30-year Treasury bond closed Friday at the lowest yield this year at 6.707%.
Reflecting the firm tone of the market, bonds from a $958 million Commonwealth of Puerto Rico public improvement refunding deal broke 1/2 point higher after they were freed from syndicate restrictions by Lehman Brothers.
In late trading, the 5 1/4s of 2018 were quoted at 93 7/8-94 to yield 5.71% on the bid-side, where it was originally priced to yield 5.75%.
Traders attributed the price pop to strong demand chasing a shortage of specialty state names ahead of July demand-related to bond calls.
Looking ahead, market players expected a relatively quiet week ahead of the July 4 holiday and said new issuance will probably be light.
The Bond Buyer calculated 30-day visible supply at a paltry $4.43 billion Friday, up $296 million from Thursday. The Blue List of dealer inventory fell $62,7 million to $1.56 billion as secondary supply also decreases.
Just over $5 billion in new issues is expected to be priced this week.
The new issue calendars jumped from $4.1 billion with the addition Friday of $750 million Pennsylvania certificates of participation, to be priced in the negotiated sector by Prudential Securities and $300 million Florida Board of Education bonds selling in the competitive sector.
Competitive offerings on tap include $104 million Louisville and Jefferson County Metropolitan Sewer District, Ky., revenue bonds tomorrow.
The negotiated sector features $150 million New York City Transit Authority transit facilities refunding bonds, to be priced by Pryor, McCledon, Counts & Co., and $142 million St. Louis Municipal Finance Corp., Mo., leasehold revenue refunding bonds, to be priced by Prudential Securities.
The short-term note sector features $350 million Colorado general fund tax and revenue anticipation notes, to bid for tomorrow.
On the economic front, the Conference Board releases its consumer confidence index for June tomorrow, followed by the Chicago business barometer Wednesday. Thursday, the National Association of Purchasing Management releases its index for June.
Traders reported some blocks of bonds out for the bid and at least one customer list that totaled about $21 million.
Apart from supply and demand factors, existing home sales grew 4.6% in May to a seasonally adjusted annual rate of 3.61 million units, but the markets paid little heed.
In secondary dollar bond trading prices were quoted unchanged to 1/8 point higher in light trading.
Seattle Light 5 3/8s of 2018 were quoted at 95 3/4s-96 1/8 to yield 5.69%; Orange and Orlando FGIC 5 1/2s of 2018 were quoted at 5.64% bid, 5.62% offered, and Washington Public Power Supply System MBIA 5.70s of 2017 were quoted at 98 5/8-99 to yield 5.80%. Chicago GO FGIC 5 5/8 of 2023 were quoted 97 5/8-98 to yield 5.79%.
In short-term note trading, yields were unchanged to as much as five basis points higher on the day, traders said.
In late action, New York State Trans were quoted at 2.20% bid, 2.18% offered; Texas Trans were quoted at 2.29% bid, 2.25% offered, and Wisconsin notes were quoted at2.60% bid, 2.55% offered.