Municipals will come up for air this week after last week's deluge of supply, giving traders a chance to tidy their positions before issuers' pre-holiday rush.
About $3.5 billion in securities flooded the market last week, and activity slowed as traders worried that supply would bog down the secondary market. But after two dismal legs of the Treasury's $38 billion annual refunding, the final part went without a hitch on Thursday, and bond prices found renewed strength and demand from buyers.
Prices gained another 1/4 and 1/2 point on Friday in active trading, and market participants said they are determined to grind prices higher.
The price gains and firm tone bode well for this week's $2.9 billion new issue slate, which features only three sizable new issues.
Although the calendars are slightly lighter than last week, the 30-day visible supply remains high. It dropped to $4.4 billion Friday from $5.8 billion last Wesnesday, which was a high for the year.
The negotiated sector features several sizable issues, dominated by $506 million California State Publiw Works Board lease revenue bonds, to be priced by Merrill Lynch & Co.; $423 million Metropolitan Transportation Authority, N.Y., revenue bonds, to be priced by Goldman, Sachs & Co.; and $149 million Kentucky State Property and Buildings Commission revenue and revenue refunding bonds, also to be priced by Merrill Lynch.
Topping the competitive slate are $226 million New York State general obligation bonds.
Market participants say the issues are likely to be priced to sell and that issuers will continue their orderly march through the primary.
"Nobody's going to take chances with the new deals," said a senior trader on Friday. "If the new deals are priced righ the market will be okay, but if they get a lukewarm reception we could be in trouble."
Economic news this week -- led by inflation data -- should confirm the market's current levels, said Hugh Johnson, chief economist at First Albany Corp.
"It looks like we will get some reprieve from inflation this month and not the shock we got last month that sent bond prices lower," Mr. Johnson said. "The other numbers don't look like they're going to hurt either and will be consistent with the view that a recovery is just clearing the trees. The only troubling thing is that everyone is leaning in the same direction."
The economic calendar features the October producer price index, to be released Wednesday, followed by initial jobless claims, October retail sales, and the October consumer price index data on Thursday.
October industrial production and capacity utilization data will be released Friday.
Friday, traders reported good follow-through business on positive auction results, and secondary activity was busy.
In the debt futures market, the December contract settled up 7/32 to 95.08.
Bid-wanteds were scarce, except for one customer list made up of 28 items totaling about $25 million.
In other action, market sources said that $3 million FGIC-insured Dallas, Fort Worth Regional Airport Authority 6s of 2021 were out for the bid at 6.63%, but were rumored not to have trade. A $3 million block of Montgomery County, Ala., Baptist Special Care Facility 6s of 2012 were rumored to have traded and reoffered around 6.65%.
California paper wer actively traded and zero coupon bonds were changing hands at yields 10 basis points lower than original offerings.
In secondary dollar bond trading, Denver Airport bond prices continued to make price gains. The 7 3/4s of 2021 were quoted up 1/2 point lat in the session at 93 1/4-94 to yield approximately 8.29%. North Carolina Eastern 6 1/2s of 2017 were quoted at 97-3/4 to yield 6.71%. Washington Public Power Supply System 6 7/8s of 2017 were quoted at 99 1/4-1/2 to yield 6.91%, and Massachussetts Water Resources Authority 6 1/2s of 2019 were quoted at 95-3/8 to yield 6.87%.
Short-term note yields were unchanged on the day in quiet dealings.
In late secondary trading, Los Angeles Trans were quoted at 4.10% bid, 4.05% offered. March New York State Trans were quoted at 4.90% bid, 4.85% offered, and New York City Rans were quoted at 4.90% bid, 4.85% offered. Texas notes continue to show the lowest yield in the note market, and were quoted at 4.05% bid, 4.00% offered in late cash trading.
Prerefunded bonds with national names, callable in 1995, were slightly firmer at 5.18% bid, 5.15% offered.