Municipal prices posted modest gains of 1/8 to 3/8 point Friday on economic data, but the market was lackluster going into a quiet holiday week, highlighted by only a few sizable new issues.
The producer price index inched up 0.l% in September because of a 0.8% increase in energy prices, while retail sales rebounded 0.7%, to a seasonally adjusted $153.3 billion, on stronger auto sales.
The market was satisfied enough with the lower inflation number to remain convinced that the Fed will ease monetary policy, while the retail sales increase came in near expectations with the gain mostly in auto sales.
"It appears that for the time being the decline that began Wednesday has been staunched and the bull market is back on," said the head of a New York trading desk. "The numbers were taken to be positive, and the market rallied back."
Prices dropped 1/4 point last Wednesday and as much as 3/8 point on average Thursday as yields corrected for the first time this month. But the market managed to make back some ground Friday, and both the 20-bond and 11-bond GO indexes were up only two basis points to 6.66% and 6.52% on the week. Trading was quiet on Friday and activity trickled to a halt in the early afternoon, but bonds from several new issues were released into the secondary market and there were several small bid lists on the broker wires, traders said.
In the short-term sector, last week's $1.3 billion New York City general obligation revenue anticipation notes were freed from syndicate restrictions by lead manager Goldman, Sachs & Co.
Near the end of cash trading the notes were quoted at 4.90% bid, 4.88% offered. The issue was originally priced to yield 4.90%.
In the long-term sector, Lehman Brothers as senior manager freed $600 million Denver airport bonds from syndicate restrictions at 9:30 EDT.
The Denver 7 3/4S of 2021 were quoted late in the session at 96 1/8-1/4 to yield approximately 8.08%. The bonds were originally priced to yield 8.05%.
Goldman, Sachs & Co., senior manager for $120 million Maryland general obligation bonds, reported an unsold balance of $61 million late in the session.
In secondary dollar bond activity, prices were quoted up 1/8 to 3/8 point on average near the end of cash trading.
East Bay California 6 1/2S of 2016 were quoted at 99-99 1/4 to yield approximately 6.56%. New York City Water Authority 7s of 2015 were quoted at 99-99 1/4 to yield 7.06%, while Triborough Bridge and Tunnel Authority-insured 6 5/8S were quoted at 99-1/4 to yield 6.68%.
In the debt futures market, the December municipal contract settled up 16/32, to 94.29.
Short-term note yields were mostly unchanged on the day, but some rose as much as five basis points.
In late secondary-market trading, Los Angeles notes were quoted at 4.21% bid, 4.20% offered, while March New York State Trans were quoted at 4.85% bid, 4.83% offered. Texas notes were quoted at 4.22% bid, 4.18% offered, and Pennsylvania paper was quoted at 4.24% bid, 4.20% offered.
This week promises to be mostly quiet as the Columbus Day holiday takes a toll on attendance and new-issue activity. But traders said some action will come from several new issues.
The week's long-term calendar totals $1.57 billion, while estimated short-term sales total $1.58 billion.
The Bond Buyer's 30-day visible supply jumped $1.13 billion, to $2.44 billion on Friday.
The negotiated sector features $400 million North Carolina Eastern Municipal Power Agency power system revenue refunding bonds, to be priced by Smith Barney, Harris Upham & Co.; $230 million Georgia Municipal Power Authority power revenue refunding bonds, to be priced by First Boston Corp.; and $116 million Sacramento Municipal Utility District, Calif., electric revenue refunding bonds, to be priced by Goldman Sachs.
The competitive sector features $80 million Clark Co., Nev., flood control limited tax bonds and $82 million Metropolitan Seattle, Wash., refunding limited tax bonds.
Demand for new issues remains strong, especially at the lower levels, market participants said.
The market is still looking for an easing of monetary policy and will watch this week's consumer price index and housing data closely for clues.