Municipals suffered losses for the 13th Friday in a row and market players expected yields to rise in the face of $6.6 billion of deals to be priced before the Memorial Day holiday.
Prices suffered last week after the Treasury 30-year bond poked through 7% at the same time nearly $3 billion of tax-exempt deals hit the Street.
The market seemed to find some stability late by mid-week, but gave in to growing supply pressure and a lower government market Friday.
"There was very little buyer demand and we're really tied to the Treasury market," said one trader. "We've got a lot of supply coming and underwriters will be forced to bring deals cheaper, stock bonds and carry them over the long weekend. At the same time, government market prospects are iffy."
Other traders noted the Street may be long bonds because market players have been anticipating a price bounce that has failed to materialize.
"People are kidding themselves, waiting for a 10 to 20 basis point correction," a trader said. "So, it's feeling really heavy and it keeps getting cheaper and cheaper, whereas prices do usually bounce after a day or so.
"But we've been down for days and the cash market seems like it's in bad shape," he said. By session's end Friday, prices were quoted down 1/4 to 3/8 point on average amid heavy selling in the morning, traders said. Action died down by mid-session as market players called it quits ahead of the weekend.
In the debt futures market, the June municipal contract settled down 8/32 to 99.27. The June MOB spread narrowed to negative 317 from negative 326 Thursday. Looking to supply, The Bond Buyer calculated 30-day visible supply at $7.9 billion while it calculated this week's supply at $6.6 billion. Secondary supply has eased somewhat. The Blue List of dealer inventory fell $69.5 million, to $1.57 billion.
The New York sector will see the most supply pressure this week. The negotiated sector features $800 million New York State Dormitory Authority refunding revenue bonds, to be priced by Goldman, Sachs & Co.; $550 million New York City Health and Hospital Corp., to be priced by as syndicate led by Dillon, Read & Co.; and $253 million Seattle, Wash., water system refunding revenue bonds, to be priced by Merrill Lynch & Co.
The competitive sector is dominated by $250 million Illinois bonds and $103 million Fairfax County, Va. bonds.
Traders reported a steady flow of bid-wanteds in the secondary Friday, but few bonds were said to have changed hands as the market ground to a halt by mid-session.
New issue activity was typically dormant, but in follow-through business, Morgan Stanley & Co. reported an unsold balance of $57 million from a $538 million California Department of Water Resources Central Valley project deal.
In secondary dollar bond trading, prices were quoted 1/4 to, as much as 1/2 point lower, depending upon the name.
In late action, California Water 5 1/2s of 2023 were quoted at 5.91% bid, 5.88% offered; Texas Municipal Power MBIA 5 1/4s of 2012 were quoted at 5.89% bid, 5.85% offered; and New York City 6s of 2021 were quoted at 6.30% bid, 6.25%. offered.
Washington Public Power Supply System MBIA 5.70s of 2017 were quoted at 96 1/4-lock to yield 5.99%; Los Angeles DEWAP 5 7/8s of 2030 were quoted at 99 1/2-3/4 to yield 5.90%; and New York State UDC 5 1/2s of 2015 were quoted at 6.17% bid, 6.15% offered.
In short-term note trading, yields were unchanged to five basis points higher on the day.
In late action, California notes were quoted at 2.85% bid, 2.80% offered; New York State notes were quoted at 2.40% bid, 2.35% offered; and Texas notes were quoted at 2.40% bid, 2.35% offered.