Follow-through gains from Friday's rally were limited by increased supply pressure yesterday, which is expected to restrain the market further this week.
Economic indicators describing a dismal economy have continued to bolster credit market prices, most recently on Friday. August non-farm payrolls dropped 83,000, when analysts expected an increased of 175,000.
Municipal traders marked bond prices up on the news, pushing yields down five basis points in the serial range, while some liquid dollar bonds rose more than one point.
Yesterday, the market opened 1/4 to 1/2 point higher as market players hoped to push prices up even higher in the wake of Friday's strong performance.
Treasury prices rose steadily throughout the day, outpacing municipals.
Tax-exempt activity died down by midsession and it became apparent that supply is formidable enough to prevent a move higher and could hurt bullish sentiment if underwriters priced new deals too aggressively.
"The visible supply jumped and everybody is afraid of that, as they should," one trader said late yesterday. "The buyers are in control again and the new deals will have to be priced to go."
Secondary prices were quoted 1/4 to 1/2 point higher on average near session's end, while some dollar bond prices jumped as much as 3/4 point.
In the debt futures market, the December municipal contract settled up 20/32, to 98.05.
The December MOB spread was calculated at negative 280. The September MOB spread widened to negative 294, an all-time record, according to statistics compiled by The Bond Buyer.
Market players were able to make headway on secondary inventory during last week's quiet holiday sessions and The Blue List of municipal bonds fell $91 million yesterday, to $1.04 billion, from Friday.
But still low interest rates continued to attract issuers eager to float still cheap bonds and The Bond Buyer tallied 30-day visible supply at a hefty $6.3 billion.
New-issue activity was light yesterday, led by a First Chicago Capital Markets group, which priced and repriced $170 million of Greater Chicago Metropolitan Water District general obligation refunding bonds.
Yields were lowered by 10 basis points in 1994 and 1995 maturities, while yields were lowered by five basis points from 2006 through 2009.
The final reoffering scale included noncallable serial bonds only, priced to yield from 3% in 1993 to 6.05% in 2009.
The issue is rated double-A by Moody's and Standard & Poor's.
Market players reported active trading during the morning session. Two bid-wanted lists dominated action, traders said, with one list totaling $50 million and the other, made up of two items, totaling approximately $30 million.
In the secondary dollar bond market, Chicago AMBAC 5 7/8s of 2022 were quoted at 95 1/2-5/8, to yield 6.20%; Puerto Rico general obligation 6s of 2014 were quoted at 97 3/8-5/8, to yield 6.22%; and Florida Board of Education 6s of 2022 were quoted at 98 3/4-lock, to yield 6.09%. Los Angeles Department of Water and Power 6s of 2032 were quoted at 97 3/4-98, to yield 6.15%; and New York City Water Authority 6s of 2017 were quoted at 95 3/4-96, to yield 6.34%.
In the short-term note sector, yields were five to as much as 10 basis points lower, traders said.
In late secondary trading, Los Angeles Trans were quoted at 2.95% bid, 2.90%; Texas Trans were quoted at 2.90% bid, 2.85% offered; and Wisconsin notes were quoted at 2.90% bid, 2.85% offered. New York State Trans were quoted at 2.90% bid, 2.80% offered.