Bonds edged higher yesterday but failed to break through the top of the current price range, and market technicians relegated near-term prospects to a coin toss.
Tax-exempt traders busied themselves with new-issue and secondary product yesterday, and demand for bonds helped maintain the firm tone set late last week.
Prices were unchanged to 1/8 to 1/4 point higher on the day, traders said.
In the debt-futures market, the March municipal contract settled up 1/32 to 96.28, while the MOB spread widened to negative 236 from negative 235 Wednesday.
But the market's future progress will be largely determined by the government market's ability to break through key resistance at 7.41% on the long bond.
Municipal traders yesterday said the market could move in either direction, depending upon which set of market forces won out.
"We've pushed the top of the range and you're supposed to be able to break out at that point," one trader said. "But, if we fail to do that, you might see a 1/2 to 3/4 point correction before we surge and rally through the highs. You can't rule out a breakout at this point."
However, skeptics note that if the market fails in its third attempt to best the current highs prices could recoil and drop steadily and, unchecked, downward momentum could push prices significantly lower.
"If we fail to break out we could be bearish in the short term," a trader said. "We're up against technical pressure in the government market, the municipal contract continues to be rich as does the cash market and supply is still heavy.
"All those things put together could discourage the strong tone without a clean move higher," he added.
But several players argued that demand for bonds remains strong and will continue to give the market a strong underpinning.
"You have to take a hard look at how it is trading anytime you move down over one point," a trader said. "But right now we are holding in. It's a coin toss at this point."
Technical pressure has eased as the market waded handily through several sizable deals.
Visible supply slipped $335 million yesterday, to $5.09 billion,
to The Bond Buyer.
The Blue List, which charts dealer supply, fell $47 million, to $1.54 billion as secondary bonds were sold to permanent investors at a healthy pace.
New-issue action was light yesterday, but results continued to be positive.
A 24-member syndicate led by Merrill Lynch & Co. priced and re-priced $379 million of general transportation system refunding bonds for Massachusetts Bay Transportation Authority.
At the repricing, yield of the 2012 term maturity was lowered by about one basis points, the yield of the 2016 term, the maximum term, was lowered by about six basis points, while the 2021 term yield was lowered by one basis point.
Dennis J. Boyle, managing director of Merrill's national underwriting desk, said the issue was heavily oversubscribed.
"People are looking for the right structure, like deeper discounts on long bonds, and we were able to lower yields on the noncallable securities while we saw good priority from 2007 through 2010," he said.
The final reoffering included serials priced to yield from 3.50% in 1994 to 6.30% in 2010. A 2012 term was priced as 6s to yield 6.33%, a 2016 term, containing $125 million of the loan, was priced as 6.20s to yield 6.27%, and a 2021 term priced as 5 1/2s to yield 6.33%.
The 2016 and 2021 term bonds are noncallable.
The issue is rated A by Moody's Investors Service, Standard & Poor's Corp., and Fitch Investors Service.
Massachusetts Secretary of Transportation James J. Kerasiotes announced yesterday that the Massachusetts Bay Transportation Authority saved approximately $21.6 million in anticipated interest costs through the sale.
"It's aggressive action like this that has allowed Gov. William F. Weld to improve Massachusetts' bond rating and to save millions of dollars for the Massachusetts taxpayer," Kerasiotes said in a release.
Authority general manager John J. Haley echoed the secretary's remarks and said that "interest rates were down and the bond market was hungry for the new issue."
Haley said that through the sale, the authority will able to survive the $15 million decline in state supported debt service in fiscal year 1993.
Municipal secondary prices moved higher, while Treasury prices split yesterday after mixed economic news was released.
The long bond improved on good inflation news and short-term securities fell on more evidence the jobs sector is improving.
The producer price index declined 0.2% at all three levels of production in November on a downturn in food and energy prices, the Labor Department.
Initial state unemployment insurance claims fell 38,000 to a seasonally adjusted 324,000 in the week ended Nov. 28.
Tax-exempt traders reported moderate secondary business in a continuation of this week's bullish activity.
Dollar bonds were quoted up 1/8 to 1/4 point on the day.
In late secondary trading, Brazos River Authority, Tex., AMBAC AMT 6 1/2s of 2027 were quoted at 99 5/8-7/8 to yield 6.52%; Houston Water and Sewer 6 3/8s of 2014 were quoted at 99 1/2-3/4 to yield 6.41%; and MBTA 6.10s of 2023 were quoted at 96 1/4-none to yield 6.38%.
Georgia MEAG 6 3/8s of 2016 were quoted at 99 5/8-100 to yield 6.40%; North Carolina Catawba 6 1/4s of 2014 were quoted at 98 7/8-99 1/4 to yield 6.34%; and Denver Airport AMT 6 3/4s of 2022 were quoted at 95 1/4-1/2 to yield 7.13%.
In late secondary note trading, yields were mixed on the day, traders said.
Los Angeles tax and revenue anticipation notes and New Jersey Trans were quoted at 2.45% bid, 2.40% offered and Pennsylvania notes were quoted at 2.55% bid, 2.50% offered.
For the second time in less than three months, Moody's Investors Service downgraded $69 million of tax increment junior lien revenue bonds issued in 1991 by Hoffman Estates, Ill., to assist Sears, Roebuck & Co.
The downgrade to Baa1 from A3 was due to financial problems plaguing Sears, including losses by its Allstate Insurance Co. subsidiary from Hurricane Andrew. Also prompting the downgrade was the expected loss of cash flow and future financial flexibility due to planned asset sales and the spinoff of Sears' Den Witter Reynolds Securities unit.
In September, Moody's lowered the rating on the bonds to A3 from A2. The bonds are rated A by Standard & Poor's Corp.
Hoffman Estates sold the tax-exempt bonds, which are secured by Sears, to finance public land acquisition and infrastructure improvements in and around the new Merchandise Group headquarters Sears built in the town.