Municipal prices dipped yesterday morning on a smaller-than-expected report of initial claims for unemployment benefits, and prices continued south through most of the session.
Yesterday morning, the Labor Department reported that initial claim for unemployment benefits rose 69,000 for the week ending July 25. Usually, that news would be enough to ensure a price jump in both the Treasury and municipal markets.
However, due to a two-week closing of General Motors plants at the end of July, economists and traders were both expecting a larger number.
"We had heard somewhere in the neighborhood of a 100,000-to-150,000 increase," said a trader. "It has made investors a little edgy about Friday's employment releases."
Prices were 1/8 to 1/4 point lower across the board yesterday, with high-grade issues slipping a solid 1/4 at the long end.
"People are just getting their houses in order ahead of the jobs data," said a trader.
Marylin Schaja, economist at Donaldson, Lufkin & Jenrette Securities, is calling for this morning's release of employment figures to be somewhat confusing, but after separating the actual gains from summer employment gains, the release should provide a bit of a boost for prices. "Aside from the supplemental figures, I'm expecting a 60,000-to-80,000 increase in nonfarm payrolls," Ms. Schaja said. "That sort of number would be productive for both markets."
She added that yesterday's price retreats may be "a bit of a hangover from Wednesday's refunding announcement and settling of positions before the release of a major number."
The consensus of economists polled by The Bond Buyer expects nonfarm payrolls to jump 200,000 for July.
Refundings at 47% of Total
Although municipal prices have been on a downswing since the middle of last week, one municipal analyst said that the long-term prognosis for the tax-exempt market "has never looked better," with demand easily outstripping supply.
James J. Cooner, senior vice president at The Bank of New York, said yesterday the abundance of refundings that have kept the market so firm this summer, looks to be a long-term trend.
"In the first seven months of 1992, refundings have accounted for 47% of total issuance," Mr. Cooner said. "In 1990, the total was 22% for the entire year."
He added that the overvaluation of the stock market, floating around record levels for the past few months, has also introduced a significant pool of new money into the municipal market.
Mr. Cooner said that within the next three years he sees "hundreds of billions of dollars" of bonds called, with issuers taking advantage of low rates to call high-coupon debt sold in 1982, 1983, and 1984.
Looking ahead, Mr. Cooner said that Congress is positioning itself to take a hard look at taxes. He said that if Congress raises taxes in a deficit-cutting move -- and he feels they will -- then tax-free investments will become an even more attractive haven for buyers.
Primary Market Quiets
Following this week's successful sales, visible supply plummeted $1.9 billion yesterday, to $3.29 billion. Dealer supply, though, continues its meteoric rise since last week. Standard & Poor's's Blue List has risen over $400 million in the past week, to $1.37 billion.
After two days where issuance totaled over $4 billion, the new-issue market slowed yesterday.
Leading the new deals was the Goldman, Sachs & Co.-led pricing and repricing of $229 million Lower Colorado River Authority, Tex., junior lien refunding revenue bonds.
The offering is split into two sections. The first section is comprised of $262 million current interest bonds. This section of the loan contains serial bonds priced to yield from 4.50% in 1997 to 5.80% in 2007.
There are also four term bonds. The first term matures in 2012 and is priced as 5 3/4s to yield 6.125%. The second term, added at repricing, matures in 2015, contains $50 million of the loan and is priced as 5 1/4s to yield 6.175%. The third term matures in 2016 and was not formally reoffered to investors. The fourth term matures in 2017, totals $114 million, and is priced as 5 5/8s to yield 6.175%.
The second portion of the loan contains $37 million capital appreciation bonds. The bonds are priced to yield from 5.75% in 2002 to 6.30% in 2013.
All the capital appreciation bonds and the 1997 through 2007 serial bonds are FGIC-insured and rated triple-A by all three major rating agencies.
The 2012 and 2017 serial bonds are insured by FSA and triple-A rated by Standard & Poor's and Moody's.
The 2016 maturity is uninsured and rated A1 by Moody's and A by Standard & Poor's.
At repricing, the yields of the 2002 maturity capital appreciation bond was raised five basis points. Yields of the 2003 and 2004 capital appreciation bonds were raised five basis points.
Also at repricing, the yield of the 2012 term bond was raise two-and-a-half basis points, while yields on the 2015 and 2016 terms were lowered by two basis points.
The yield of the 1997 serial bond was lowered by five basis points.
In the day's largest competitive deal, a group led by Dillon Read & Co. apparently won an issue of $119 million Municipality of Metropolitan Seattle Series V refunding revenue bonds, with a true interest cost of 6.3075%.
The offering contains a single term bond maturing in 2032, priced as 6.20s to yield approximately 6.268%.
The issue is rated A1 by Moody's and AA-minus by Standard & Poor's.
Secondary participants said prices were 1/4 to 3/8 lower, with little activity to report. Several large deals were freed from syndicate restrictions to trade.
In secondary dollar bond trading, newly freed New York City Water Authority AMBAC 5 3/4s of 2018 were quoted at 95 1/4-5/8 to yield 6.11%; Wisconsin Transportation Authority Rev 5 1/2s of 2022 were quoted at 91 1/4-3/4 to yield 6.14%; and Jacksonville Electric Authority 5 1/2s of 2014 were quoted at 93 1/4-3/4 to yield 6.06%.
In other heavily traded names, Los Angeles Department of Water and Power 6s of 2030 were quoted at 97 3/8-5/8 to yield 6.17%; New Jersey Turnpike Authority 6 1/2s of 2016 were quoted at 106 3/4-107 1/4 to yield 5.96%; and Port Authority of New York and New Jersey 5 5/8s of 2014 were quoted at 95 1/4-5/8 to yield 6.11%.
In short-term action, traders reported moderate selling, with yields moving five to 10 basis point higher on the day.
In late trading, Iowa Trans 3 1/2s were quoted at 3.05% bid, 3.00% offered; Los Angeles Trans 3 3/4s were quoted at 2.90% bid, 2.85% offered; and New York City Trans 3 1/4s were quoted at 2.75% bid, 2.65% offered. Wisconsin Trans 3 3/4s were quoted at 2.90% bid, 2.80% offered, while New York State Trans 3.65s were quoted at 2.90% bid, 2.85% offered.
The futures contract was hardest hit by the day's sell-off. At settlement, the September municipal contract was down 16/32, to 98.15.