Prices rose 1/4 to 3/8 point after the Federal Reserve Board cut the discount rate to 5% Friday, clearing the way for more price gains and lower interest rates on this week's $4.2 billion new issue slate.
The market's anticipation paid off yesterday as the Fed finally moved to cut the discount rate after it was reported that retail sales plunged 0.7% to an adjusted $152.3 billion in August, the biggest monthly drop since January. The consumer price index for all urban consumers rose 0.2% in August, the same as the two preceding months.
Despite profit-taking in the Treasury sector, tax-exempts held their gains. Traders speculated that municipal prices will continue to improve as investor demand remains high.
"There's a lot of cash out there and investors will continue to come out on the curve," said one New York based trader. "We're constructive going forward as long as we don't get too far ahead of ourselves. We've underperformed Treasuries for so long that even if they come back it won't hurt us much."
Secondary trading was moderate in the morning, but tapered off in the afternoon. Traders reported one list of short maturities in the $200 million range out for the bid and several blocks of bonds in the $10 million range changed hands, they said.
In the debt futures market, the December municipal contract settled up 3/32 to 93.24 with the December MOB spread calculated at negative 150.
In secondary dollar bond trading, New Jersey Turnpike Authority 6.90s of 2014 were quoted at 99 3/4-100 to yield 6.89%. Puerto Rico Electric Power Authority 7s of 2021 were quoted at 99 3/4-100 1/8 to yield 6.98%. And Colorado River Authority insured 6 5/8s of 2021 were quoted at 97 1/2-3/4 to yield 6.80%.
Short-term note yields sank about five to 10 basis points on the day.
In late secondary trading, Los Angeles notes were quoted at 4.60% bid, 4.55% offered, while New Jersey Trans were quoted at 4.62% bid, 4.60% offered. March New York State Trans were quoted at 5.12% bid, 5.10% offered.
March California notes were quoted at 4.52% bid, 4.50% offered, while June Cals were quoted at 4.60% bid, 4.55% offered.
In prerefunded bond trading, yields fell about five basis points on the day.
Prerefunded bonds, callable in 1995, were quoted at 5.38% bid, 5.35% offered.
Looking ahead to supply, the 30-day visible supply rose $438 million to $3.22 billion Friday. Overall, year to date new issue volume totals $106.4 billion, an increase of 26% from $84.2 billion over the previous year.
Standard & Poor's Corp.'s The Blue List of municipal bonds totaled $1 billion Friday.
An issue of $524 million Massachusetts general obligation refunding bonds dominates the negotiated calendar and will be priced by First Boston Corp. Also slated to be priced are $212 million Rhode Island Housing and Mortgage Finance Corporation revenue bonds, to be priced by Goldman, Sachs & Co., $180 million Delaware Department of Transportation transportation system senior revenue bonds, to be priced by Dillon, Read & Co., and $175 million New Orleans, La., GO refunding bonds, to be priced by Alex. Brown & Sons.
The competitive sector also features some sizeable issues, including $170 million San Francisco, Calif. revenue bonds, $150 million Los Angeles Department of Water and Power, Calif., revenue bonds, and $115 million Ohio higher education revenue bonds.
The short-term sector also features size, including $800 million Texas tax and revenue anticipation notes, to be sold competitively, and $641 million Connecticut economic recovery GO notes, to be priced by Bear, Stearns & Co.