Lofty municipal prices rose another 1/4 point on average yesterday as demand for bonds remained strong, even in the face of today's important jobs data.
The National Association of Purchasing Management surprised the market when it reported that its index dropped to 52.8% in June from 56.3% in May.
A reading above 50% indicates the manufacturing economy is generally expanding; a reading below 50% indicates it is generally declining.
Bond prices firmed on the news, gaining 1/4 to as much as 3/8 point by session's end. In the debt futures market, the September municipal contract settled up 6/32 to 96.09.
"Long municipals are too high right now," said one market bear. "But there's too much money out there for prices to go down. Get short, that's the best place to be."
Prices have gradually climbed over the last month to levels near recent record lows, fueled by an anticipated huge influx of investor cash reaped from mammoth bond calls yesterday. Today's June employment report ios likely to set the tone for the near term, and the market is bullish on the data.
"The long end of municipals is high, and there are a lot of good reasons not to own a lot of bonds right here," a market bull acknowledged. "But it's hard to imagine that a jobs number that's bad enough to make people run is in the cards right here. We're going to get a good number, go home for the holiday, and come in next week and get started."
But should the jobs report prove disappointing for bonds, prices will fall from their impressive heights. If the numbers are only marginally disappointing, market players say there is likely to be support from investors grabbing bonds at cheaper levels. "It's going to take a little time before the funds have their redemption money, but once they get it there's nowhere they can go except municipals," said a short-term note trader. "The market is technically driven and it's got support."
If the news is extremely disappointing, more skeptical market players say buyers are likely to hit the sidelines, and prices could suffer large losses.
The employment report will show a 94,000 increase in June nonfarm payrolls, following May's 68,000 rise, according to 22 economists surveyed by The Bond Buyer. The economists forecast gains ranging from 50,000 to 150,000.
Most of them expect the June unemployment rate to retreat from the 7.5% posted in May, with more than half the analysts predicting either a 7.4% or 7.3% jobless rate.
Secondary trading was moderate yesterday, although prices firmed.
Standard & Poor's Blue List of dealer inventory fell to $1.6 billion, indicating that there are few tradable blocks of bonds in the secondary market.
In follow-through business, Goldman, Sachs & Co., senior manager for $454 million to Texas Municipal Power Agency refunding revenue bonds, freed the issue from syndicate restrictions.
In late secondary trading yesterday, the maximum term maturity, the MBIA 5 3/4S of 2012, were quoted at 92 7/8-93 to yield approximately 6.38% on the bid side. The bonds were originally reoffered to investors at an original discount to yield 6.375%.
Lehman Brothers, senior manager for $405 million of Pennsylvania GOs, freed the issue from syndicate restrictions.
In secondary dollar bond trading, prices were unchanged to as much as 3/8 point higher on some names.
In late action, Florida Turnpike Authority FGIC 6.30s of 2012 were quoted at 99 5/8-3/4 to yield 6.33%, and New Jersey Highway Authority 6 1/4s of 2014 were quoted at 99 1/8-1/4 to yield 6/32%. New York City Water Authority AMBAC 5.20s of 2021 were quoted at 98 3/8-5/8 to yield 6.32%, Triborough Bridge and Tunnel Authority AMBAC 6 1/4s of 2012 were quoted at 99 3/8-5/8 to yield 6.30%, and South Carolina PSA AMBAC 6 3/8s of 2021 were quoted at 99 5/8-7/8 to yield 6.40%.
In the short-term sector, selling pushed yields about five to 10 basis points higher, traders said.
In late trading, Los Angeles Tans were quoted at 2.89% bid, 2.87% offered, New York City Tans were quoted at 2.60% bid, 2.50% offered, and New York State Trans were quoted at 2.90% bid, 2.85% offered.