Municipal prices ended the week on an upbeat note after economic news swayed any fears about inflationary pressure on the economy.
Municipal prices were given a boost Friday morning following the Census Bureau's report that during May the federal budget deficit increased 4.5%, or $7.4 billion. This represented the largest single-month increase since November 1990.
The increase brings the year-to-date total to $29.1 billion. Last year, the total through May was just under $21 billion.
Market participants said that the decline in exports was particularly encouraging to investors, as less demand for American-made products overseas will necessitate lower prices.
One market participant said on Friday that trading was almost non-existent during the session, and that prices were up and down all day. "Prices got a boost in the morning and remained there through the session," he said. "There was such sparse action during the afternoon, that prices floundered around and ended narrowly mixed."
On Friday, the September municipal futures contract fell 7/32, to 97.25. The September MOB spread stood at negative 139.
One trader said the bullish tone the tax-exempt market currently holds should remain in place throughout this week.
"There's nothing in the market to severely hurt prices," said the trader. "Technically we're in great shape because supply is so light and there are few economic indicators next week."
"I expect that the next couple of weeks will challenge the Christmas season and contain some of our most quiet days," he added.
The only major indicator this week is the Commerce Department's report of durable goods orders and shipments, released Friday morning. for May, orders fell 2.1% and shipments fell 1%.
Michael P. Niemira, economist at Mitsubishi Bank, said in his weekly economic report that he expects durable goods orders to rise 0.4% for June, but to fall 0.5% minus defense orders.
On Friday, 30-day visible supply, as charted by The Bond Buyer, stood at $3.33 billion. Standard & Poor's Corp.'s Blue List was at $1.03 billion.
The primary sector was silent on Friday with investors looking ahead to this week's light calendar of new deals.
In the negotiated sector, expected to be priced are issues of $372 million New York State GO refunding bonds, senior managed by Merrill Lynch & Co.; $300 million Florida Municipal Power Authority revenue refunding bonds, senior managed by a group led by Goldman, Sachs & Co.; and $96 million Memphis-Shelby Co., Tenn., special facilities revenue refunding bonds senior managed by First Boston Corp.
There are few large deals slated to be sold competitively. The largest, and only one over $100 million, is a deal of $107 million Nassau Co., N.Y., GOs.
In short-term financings, expect issues of $375 million Iowa tax and revenue anticipation notes senior managed by Goldman, Sachs & Co., and $300 million Puerto Rico tax and revenue anticipation notes to be offered competitively.
Moody's Investors Service downgraded the GO debt of Worcester, Mass., to Baa from Baa1, in conjunction with the proposed sale of $30 million GOs on July 22.
The rating agency cited three successive years the stated has lowered aid allotments to the city, limitations that the city has on new revenue raising methods caused by Proposition 2 1/2, and the impact the state's current recession has had on the city's financial position.
Moody's said that the city, the second largest in New England, was able to stay in the black for several years by dipping into its general reserves fund. But during fiscal 1991, revenue shortfalls caused a $1.5 million deficit.
Joan Dougherty, vice president and manager of the New England region, said the city has several factors keeping it above water.
"The city is an important regional presence, is well-managed, and is in a favorable position because of low debt burden," Ms. Dougherty said. "Even though the city is expecting to issue a good deal of debt in the next three years, a lot of the debt is either self-supporting or backed by the state."
In secondary dollar bond trading, Sacramento Municipal Utilities District 5 3/4s of 2021 were quoted at 94 1/2-5/3 to yield 6.17%; Oklahoma Turnpike Authority 6 1/8s of 2020 were quoted at 98 3/4-99 1/4 to yield 6.21%; and New York City Water Authority AMBAC 6.20s of 2021 were quoted at 99 7/8-100 1/4 to yield 6.20%. Texas Municipal Power Authority MBIA 5 3/4s of 2012 were quoted at 95 3/8-5/8 to yield 6.15%, and Salt River 5 1/2s of 2025 were quoted at 90 3/8-5/8 to yield 6.18%.
In short-term action, traders reported a quiet day, with yields remaining unchanged to slightly higher in spots.
In late action, Los Angeles Trans 3 3/4s were quoted at 3.10% bid, 3.05% offered; New York City Tans 3 1/4s were quoted at 2.95% bid, 2.85% offered; San Bernardino Co., Calif., Trans 3 3/4s were quoted at 3.19% bid, 3.15% offered; and New York State Trans 3.65s were quoted at 3.00% bid. 2.95% offered.