Municipal prices jumped yesterday as traders extended the rally sparked by a weak jobs report last Thursday.

Tax-exempts leapt 1/2 to as much as one point last Thursday after a weak employment report prompted the Federal Reserve Board to cut both the discount rate and the federal funds rate by a whopping 50 basis points in an effort to spark economic growth.

Traders estimated that prices climbed from 1/4 to as much as 3/4 point in spots yesterday, but trading was relatively light due to a shortage of bonds.

"Everybody wants to buy bonds but nobody wants to sell them," said one trader. "It's gridlocked."

In the debt futures market, the September municipal futures contract settled up 6/32, to 97.18, while the MOB spread was calculated at negative 162

Historically, markets do not move significantly higher without encountering some sort to correction.

"There aren't many people looking over their shoulders," said one trader. "The danger lies in the bulletproof mentality of not just traders, but buyers as well."

Despite a month of gradually improving prices and the one point jump Thursday, bullish market players were not yet worried about a price correction and the tone remained firm.

"We're not looking for a correction right away," acknowledged the head of a major Wall Street trading desk.. "The jobs data was a shocker and that combined with a superior technical situation in munis is like nitrous oxide in the engine."

Looking ahead, prices could suffer Friday if the producer price index shows an unexpected jump in inflation levels.

But the markets are currently comfortable with the notion that the economy will fail to improve soon and that prices will continue to move higher for the near term.

"The next occasion for a correction will be in early August when we get a new round of economic data and the Treasury does the August refunding," said James L. Kochan, head of research at Robert W. Baird. "Until we see evidence that the economy is not as weak as it looks now any market correction will be viewed as a buying opportunity."

Offering the tax-exempt market additional support is increased demand for a scarcer amount of bonds.

Volume for the year totals $114 billion, a 51.74% jump over last year's $75 million for the same period, according to figures compiled by The Board Buyer yesterday.

Despite the heavy influx of supply, The Blue List, sometimes used as a rough approximation of dealer inventory, dropped $269 million yesterday, to a paltry $900 million. The last time the total was in that range was Jan. 10, when it was $785 million. The low for the year was tallied Jan. 2 when the list totaled $638 million.

New-issue activity was light yesterday, but a syndicate led by Alex. Brown & Sons Inc. priced and re-priced $273 million of Montgomery County, Md., general obligation consolidated public improvement refunding bonds.

Serial bond yields in 1994 and 1995 were lowered by about five basis points, while the yield in 2000 was raised by five basis points. Zero coupon bond yields were lowered by about two basis points.

The final offering scale included $260 million of serials priced to yield from 2.75% in 1993 to 5.90%, an original issue discount, in 2007.

About $13 million of the loan was priced at an original issue discount as non-callable zeros to yield 6.18% in 2008, 6.23% in 2009, and 6.23% in 2010.

The managers said they expected the issue to be rated triple-A by both Moody's Investors Service and Standard & Poor's Corp.

In follow-through business, Morgan Stanley & Co. freed $243 million East Bay Municipal Utility District water system subordinated revenue refunding bonds from syndicate restrictions.

In late secondary trading, the maximum term maturity, the 6s of 2012, were quoted at 97 7/8-98 1/4 to yield approximately 6.18% on the bid side. They were originally priced to yield 6.311%.

Traders reported light activity in the secondary, and dollar bond prices were from 1/4 point to 3/4 point higher.

In late secondary action, New York City Water Authority AMBAC 6.20s of 2021 were quoted at 99 1/2-3/4 to yield 6/23%, New Jersey Highway Authority 6 1/4s of 2014 were quoted at 100 1/8-1/4 to yield 6/23%, and Texas Municipal Power Agency MBIA 5 3/4s of 2012 were quoted at 94 3/8-1/2 to yield 6.24%. Metropolitan Transportation Authority MBIA 6 1/4s of 2017 were quoted at 99 3/4-100 to yield 6.30%.

Traders of short-term securities said action was light yesterday, and prices of actively traded issues remained mostly unchanged.

"The tone of the market continues to be very firm," said a trader. "The next couple of days should tell the tale about whether we have hit the ceiling for prices or not."

Late in the session, Los Angeles Trans 3 3/4s were quoted at 2.81% bid, 2.65% offered; New York City Tans 3 1/4s were quoted at 2/55% bid, 250% offered; San Bernadino Co., Calif. Trans were quoted at 3.00% bid, 2.90% offered; and New York State Trans 3.65s were quoted at 2.70% bid, 2.65% offered.

Today's Competitive Issues

The competitive calendar today features $291 million Georgia general obligation bonds, $241 million Minnesota GOs, and $115 million Ohio higher education revenue bonds.

Market players said late yesterday that the Georgia deal, which is non-callable, could garner a top yield between 5.95% to 6%.

The issue is rated Aaa by Moody's and AA-plus by Standard & Poor's.

The Minnesota bonds, rated Aa by Moody's, could fetch a top yield between 6% and 6.05%.

The Ohio revenue bonds could be priced with top yields of 6.05% to 6.10%.

The issue is rated A by Moody's. [Tabular Data Omitted]

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.