Municipal traders managed to hoist prices up slightly on Friday on positive unemployment data, improving the market's chances to rally through supply this week.
The civilian unemployment rate came in unchanged in August as non-farm payrolls increased 34,000.
The small job increase reflected a surge of 42,000-job gains in manufacturing while jobs in government plunged 31,000; losses were also seen in retail trade and construction.
Treasury prices spiked 3/4 point higher on the news, as the market anticipates further easing by the Fed, but traders reported very little secondary activity in the tax-exempt sector after the number.
There was no indication that the Fed had eased by session's end. Tax-exempts held onto their modest gains of 1/8 point.
In the debt futures market, the December municipal futures contract settle up 15/32 to 93.05 with the December MOB spread calculated at negative 152.
Market players have been expecting an ease on a weak employment number, but opinions now vary about whether the Fed will take action or hold monetary policy steady.
Market observers note that the market faces several important economic indicators this week which could end the speculation.
"If you look more carefully at the employment data, you won't reach the conclusion that the Fed will ease soon," said Hugh Johnson, chief economist at First Albany Corp. "The argument will reach a conclusion this week after we get the inflation numbers."
Mr. Johnson said that he expects the numbers to show strength that will be troubling to the bond markets. "The numbers will be strong enough to convince observers that Fed policy will be put on hold at least for the remainder of the month," he said.
Predicting data has become increasingly difficult because of the cloudy economic picture.
July consumer credit data will be released today, followed by initial unemployment claims for the week ended Aug. 31 and the producer price index for August on Thursday. Friday, the August retail sales report and the August consumer price index will be released.
But the 1/8 point gains on Friday improved the outlook for this week.
"It means you feel good going into the week," a New York-based trader said. "You have a bid going into the market and stuff will get done."
The improved tone and upcoming supply is a relief after several weeks of listless trading while the market waited out the summer doldrums.
Looking ahead to supply, the 30-day visible supply totaled $3 billion on Friday, while Standard & Poor's Corp.'s The Blue List of municipal bonds decreased $268 million to $1.1 billion.
The negotiated sector features several sizeable new issues, including $449 million New York Local Government Assistant Corp. revenue bonds, to be priced by Goldman, Sachs & Co., $240 million Triborough Bridge and Tunnel Authority, N.Y. special obligation refunding bonds, to be priced by Bear, Stearns & Co., and $150 million Illinois GO college savings bonds, to be priced by First Chicago Capital Markets.
The competitive sector features myriad small issues.
Secondary trading was very quiet on Friday and market participants were content to break for the weekend and head into the week with a positive tone.
In secondary dollar bond trading, New Jersey Turnpike Authority 6.90s of 2014 were quoted unchanged on the day to 99 1/4-1/2 to yield 6.94%. Florida State Board of Education 7 1/4s of 2023 were quoted unchanged at 103 5/8-104 to yield approximately 6.76% to the 2004 par call. New York LGAC 7s of 2016 were quoted down about 1/4 point to 97 3/4-98 1/4 to raise the yield to 7.15%. Puerto Rico electric Power Authority 7s of 2021 were quoted unchanged at 99 1/8-1/4, where they returned 7.05%. And Colorado River Authority insured 6 5/8s of 2021 were up 1/8 to 97 1/4-1/2 to yield 6.83%.
In the short-term note sector, yields were mostly unchanged to slightly higher in spots.
In late secondary trading, Los Angeles notes were quoted at 4.73% bid, 4.67% offered. New Jersey Trans were quoted at 4.72% bid, 4.67% offered, while June California notes were quoted at 4.72% bid, 4.67% offered near the end of cash trading. March New York States Trans were quoted at 5.25% bid, 5.20% offered.