New deals are expected to be well received this week, but municipal prices are expected to lag gains in the Treasury market.
Although trading was light ahead of this week's full slate of bond deals, municipals were quoted 1/4 to 3/8 point higher on the day.
The uptick continued a rally triggered last week, when the market improved after worries over a potentially strong federal fiscal stimulus package abated.
Bullish sentiment increased on Friday, even after a stronger-than-expected October unemployment report.
Instead of pushing prices lower, the improving jobs sector convinced market players it is less likely President-elect Clinton will increase spending and widen the deficit to give the economy a shot of energy.
Municipals turned in gains of as much as 1/2 point by session's end on Friday.
In the debt futures market yesterday, the March municipal contract settled up 17/32, to 96.19. But the March MOB spread widened as Treasury futures outpaced tax-exempts.
The spread was calculated at negative 236, compared with negative 227 last Friday. The spread is the widest since it hit negative 244 on Nov. 4.
Despite the strength in the market, trading was light yesterday. Most market players were content to wait and watch for the results of some sizable new deals before making any big moves.
There also continued to be selling into the strength. For example, secondary traders reported a $55 million bid-list, set for sale today.
"There is no reason to jump at the market if you got in the right time on Friday," said a trader. "We're looking for a nice rally from here until January, although we're going to get too many new bonds to keep pace with the government market."
New issues are expected to be accepted by investors, thanks to billions in imminent redemptions and coupon payments at year-end. Some market players argued yields would be lower than anticipated last week.
For example, market players expected $879 million, revenue bonds for the Triborough Bridge and Tunnel Authority to be priced today at a top yield of 6.25%.
Tribes are currently a scarce name in the secondary, but some smaller blocks were said to be offered at those levels yesterday.
Reflecting the strong tone, several sizable deals were freed to trade yesterday and prices made impressive gains.
For example, First Boston Corp. freed $647 million of Houston, Tex., Water and Sewer System revenue bonds from syndicate restrictions.
In late secondary trading, the 6 3/8s of 2014 were quoted at 99 1/4-1/2 to yield approximately 6.43% on the bid-side, compared with the original reoffering yield of 6.504%. The MBIA-insured 5 3/4s of 2015 were quoted 6.26% bid, 6.25% offered, compared with the original reoffering yield of 6.35%.
But municipal prices were expected to be held at bay by the sheer number of bond deals expected to be priced in the coming weeks.
About $4.2 billion of new issues are expected to be priced this week, although a shadow sales calendar circulating in the market is thought by many to contain more deals.
For example, New Jersey officials yesterday said they hope to issue $1.6 billion in refunding bonds next week, deferring more than $900 million of debt service now scheduled to come due over the next three years.
Looking ahead to supply during the next month, The Bond Buyer calculated 30-day visible supply at $6.69 billion, unchanged from Friday's level.
In light action n the primary sector, Dougherty, Dawkins, Strand & Bigelow Inc. as senior manager tentatively priced $86 million general obligation school building and refunding bonds for the Jordan School District Salt Country, Utah.
The offering included serial bonds priced to yield from 4.50% in 1996 to 6.10% in 2007.
The bonds are rated Aa by Moody's Investors Service.
In follow-through business, Morgan Stanley & Co. freed $158 million Guam Power Authority revenue bonds from syndicate restrictions.
In late secondary trading, the 6.30s of 2022 were quoted at 97 1/2-3/4 to yield 6.49%. The bonds were originally priced to yield 6.529%.
Trading was lackluster for most of the session, market players said, although the tone was described as strong.
Secondary supply was on the increase last week, but The Blue List of municipal bonds fell $33.2 billion, to $1.76 billion yesterday.
In secondary dollar bond trading, prices were generally quoted unchanged to up as much as 1/2 point, traders said.
In late action, Georgia MEAG 6 3/8s of 2016 were quoted at 99 3/8-1/2 to yield 6.42%; North Carolina Catawba 6 1/4s of 2015 were quoted at 98 1/4-5/8 to yield 6.39%; and Denver Airport AMT 6 3/4 of 2022 were quoted at 95-1/4 to yield 7.15%.
Short-term note yields jumped as much as 15 basis points yesterday.
In late trading, Los Angeles Trans were quoted at 2.39% bid, 2.35% offered; New Jersey Trans were quoted at 2.35% bid, 2.30% offered; and Pennsylvania Tans were quoted at 2.45% bid, 2.40% offered.
Suffolk Rating Raised
Fitch Investors Service yesterday affirmed the A rating on Suffolk County, N.Y.'s general obligation bonds as part of an upcoming bond deal by the financially strapped county.
On Dec. 10, Suffolk is scheduled to issue two classes of public improvement bonds: $35.3 million of 1992 Series A bonds and $18.3 million of 1992 Series B bonds. The county will sell both sets of bonds through a competitive bidding process.
Suffolk County, struggling under the weight of a stiff regional recession, was one of 10 state municipalities to ask state lawmakers during the last legislative session to approve the issuance of deficit bonds. After some political acrimony, the county in August decided to issue $35 million in budget notes to cover a portion of its accumulated deficit, then estimated at $100 million.
"Suffolk County continues to weather the economic and political problems that have followed it for the last few years," Fitch said in a press release. "It now appears that at least the political difficulties have eased, the recession has bottomed out."