Municipal bond prices gained a quarter-point or more yesterday, despite a slightly weaker Treasury market and robust economic data.
"It's good to be busy again," one municipal trader said. Municipals lost some of their morning strength, but still appeared to be holding steady during the afternoon, he added.
"It gave back a little bit of ground, but there has been a real good flow of business" during the past two days, he said.
A municipal analyst said the market had been up as much as 3/8 point at midday, but ended yesterday's moderately active session up 1/4 to slightly more overall. Dollar bonds ended 1/4 point higher, while yields on high-grade issues improved by three basis points. Some traders yesterday, however, pegged the market as higher by 1/4 point in the morning, and flat by the close.
In debt futures yesterday, the March municipal contract settled down 1/8 point to 83 19/32. Yesterday's March MOB spread was negative 452, compared with negative 459 on Wednesday. In the government market, the 30-year bond was down 6/32 to yield 8.01%.
The muni market has improved because "everybody's inventories were kind of low and the Blue List was kind of skinny, so I think a lot of bonds some way or another had gone away through this entire mess," a trader said.
Meanwhile, the amount of bonds that will mature, be prerefunded, or called in 1995 is expected to exceed next year's new issuance, he said.
Players now are taking advantage of higher yields, and putting money to work, he added.
Kevin Flanagan, a vice president and financial economist at Dean Witter Reynolds Inc., said the bond market has displayed "tremendous resiliency" in the past few sessions, considering the "data challenges" it has faced.
"The numbers we've gotten throughout the whole course of the week, starting with consumer confidence on Tuesday, have been on the robust side," Flanagan said.
Despite those numbers, the bond market continues to trade in "an almost flattish kind of a pattern," the economist said, adding that he would have expected to have seen a little more weakness.
Thursday's batch of economic data included the National Association of Purchasing Management's index, which increased to 61.2% in November, from 59.7% in October. The new orders index increased to 66% from 64.3%, while the prices paid index dropped to 77.9% from 79.9%.
"Anyway you slice it, all the numbers and the underlying components within the overall figure were on the strong side," Flanagan said. "Even though the prices paid [component] was off, it was still the second highest figure since 1988."
Construction spending, meanwhile, increased 0.9% in October, while claims for unemployment insurance dropped 12,000 to 317,000 for the week ended Nov. 26.
In addition, the Commerce Department yesterday reported that personal income jumped 1.4% in October, while household spending climbed 0.7%. The gains are the biggest since February.
"Income and consumption revealed that as the fourth quarter got underway, consumers had money in their wallets and they were willing to spend it," Flanagan said, adding, however, that care must be taken in evaluating those figures.
"I think a lot of the spending we've seen so far this year has exceeded the pace of income accumulation, and I think what could be happening is consumers are moving into the credit area to obtain these purchases, and that's why consumer installment indebtedness has skyrocketed this year," he said.
Flanagan said the market has managed to withstand the strong economic data because, from a technical standpoint, "there seems to be a level of support right around these levels."
Also helping are a stronger dollar and lower gold prices, he said.
"What we hear [is that] investors are selling the short end and buying the long end, feeling that there will be some type of a slowdown," Flanagan said. "I don't dispute that, but I think the timing might be a bit premature at the present time."
As for today's November employment report, Flanagan said he doesn't think the data will prove overly supportive for bonds.
"I think at best it will be a neutral kind of a figure," he said. "It will keep alive the notion that the Fed may have to tighten in early 1995. I don't know if it's going to be strong enough so that the urgency would be pushed up at the December meeting."
Investors particularly should watch the average work week and average hourly earnings figures, he said.
"You know the payroll number always gets the initial knee- jerk reaction, but I think the work week and earnings are very important to look at," Flanagan said, "They've both moved higher on a rather noticeable basis."
In competitive action yesterday, a Goldman, Sachs & Co. group won $112 million Virginia Housing Development Authority commonwealth mortgage revenue bonds with a true interest cost of 7.06%.
The offering consisted of $79.3 million Series A bonds, which are subject to the alternative minimum tax, and $32.7 million sub-series B-1 bonds, which are not subject to the tax.
The Series A portion consisted of serial bonds reoffered at yields ranging from 5.25% in 1996 to 7.15% in 2010. Term bonds in 2019 and 2023 were not formally reoffered to investors.
The sub-series B-1 portion consisted of serial bonds reoffered at yields from 6.875% in 2011 to 7.25% in 2015. A 2017 term was priced to yield 7.20%.
Turning to next week's competitive slate, the biggest deal so far is Delaware's $45 million of general obligation bonds on Tuesday.
Next week's negotiated calendar includes $222 million of Michigan State Hospital Finance Authority Revenue bonds and $150 million of New York City Industrial Development Agency revenue bonds. Bear, Stearns & Co. will serve as senior manager on both deals.
The 30-day visible supply of municipal bonds yesterday totaled $3.14 billion, up $128.9 million from Wednesday. That comprises $1.29 billion of competitive bonds, up $58.8 million from Wednesday, and $1.851 billion of negotiated bonds, up $70.1 million.
Standard & Poor's Corp.'s Blue List of municipal bonds was down $115.5 million, to $1.413 billion.
