Prices were narrowly mixed in light trading yesterday, and players said the market had settled into a price range.
The market took a breather after Tuesday's consumer price report showed an increase in inflation and prices dropped precipitously. The 30-year Treasury bond finally found support right around 6% Wednesday, and tax-exempt market players seemed unwilling to make any moves on their own yesterday.
The Treasury market faded overnight after a rally in the precious metals market heightened fears of more inflation.
Prices failed to improve after initial state unemployment insurance claims rose 2,000 to a seasonally adjusted 324,000 in the week ended Sept. 11, even though the previous week's level was revised upward by 6,000 claims to 322,000.
With few bonds in the system and prices at or near record highs, market players took a cautious stance, unwilling or unable to make any significant moves.
"Until there is a resolution made about whether the economy is getting some footing we're likely to stick to a range here," said one trader. "You buy the dips and sell the highs and try to make some money, although there isn't a whole lot to be had in that scenario."
Trading was choppy and players said the market has probably settled into a trading range where the government long bond will move between a 5.85% to 6.05%. They added, however, any downtick could build momentum because a correction from the current highs is still anticipated, even after recent losses.
But that failed to materialize yesterday and some traders noted tax-exempt prices have held in well against Treasury losses.
By sessions' end, prices were quoted narrowly mixed.
In the debt futures market, the December municipal contract settled unchanged on the day at 104.22.
Looking ahead, economic news is sparse but some players said yesterday that the next thing to move prices could be deals that are priced cheaper than secondary levels.
"Underwriters will give the buyers what they want," one trader said. "Then we'll have a two-tiered market and we'll be forced to adjust levels."
But there are few new deals in the pipeline. leaving dealers to trade sparse secondary product, although secondary supply has increased thanks to the recent price losses.
The Bond Buyer yesterday calculated 30-day visible supply at $2.16 billion, while The Blue List jumped $142 million to $1.36 billion.
New-issue activity was extremely light yesterday, although underwriters did report some business from deals priced earlier in the week.
Traders reported the usual smattering of bid-wanted lists and smaller blocks of bonds up for sale.
In secondary dollar bond trading, South Carolina PSA FGIC 5s of 2025 were quoted at 5.34% bid, 5.32% offered; Washington Public Power Supply System 5 3/8s of 2015 were quoted at 5.57% bid, 5.56% offered; and Florida MPA AMBAC 4 1/2s of 2027 were quoted at 88 1/2-7/8 to yield 5.25%.
Jacksonville Electric 5 1/4s of 2021 were quoted at 5.37% bid, 5.34% offered; New York State Power Authority 5 1/4s of 2018 were quoted at 99 7/8-100 1/8 to yield 5.25%; and Florida State Board of Education 5 1/4s of 2023 were quoted at 98 5/8-7/8 to yield 5.34%.
In the short-term note sector, yields were about five basis points higher on the day, traders said.
In late action California Rans were quoted at 2.85% bid, 2.80% offered.