After six straight weeks of modest declines, traders see tax-exempt rates stabilizing this week, despite a much lighter $1.5 billion new-issue calendar.
Trade buyers and permanent investors have been absorbing $3 billion calendars for the last several weeks without batting an eye, and interest rates have managed declines in the face of the heavy supply. But with the July jobs figures coming out this Friday and the Treasury auctions coming up next week, some municipal market participants said on Friday that they expected a leveling off in rates this week and early next week.
Although the government bond market finally got the upper harn last Tuesday and Wednesday after three months of underperforming tax-exempts, municipal traders said as last week came to a close that government bond prices would be vulnerable going into the auction, and that tax-exempts would once again get back into the driver's seat.
Last week's week economic statistics proved beneficial to both markets, with tax-exempt yields dropping about five basis points and government returns falling close to 10 basis points. The weak data either rekindled the idea of a double-dip recession, or reinforced the notion of an extremely modest recovery with little or no inflationary pressures.
Permanent investors continued to take on virtually all of last week's big supply. Investor demand was strong enough to prompt underwriters to increase the size of the Puerto Rico Electric Power Authority offering by $50 million to $250 million and at the same time shave yields. And after the issue was released from syndicate price restrictions, the &s of 2021 traded up to a market of 97 7/8-98 1/8, trimming the return to 7.15% from 7.20%.
Over in the competitive market, an issue of $200 million Florida State Board of Education general obligation bonds showed a first-day serial balance of $23 million, but closed out by Friday, and a $195 million Minnesota GO bond sale had an initial balance of $56 million and also closed out before the week was over.
In free market trading, the Florida 6 3/4s of 2021 were holding at 97 7/8-98 1/8 late Friday to yield 6.90%. The Minnesota issue was scaled out to 6.80% in 2011.
James J. Glynn, executive vice president and director in the municipal securities division at Dean Witter Reynolds Inc., said Friday that he expected long-term tax-exempt rates to trend lower for the remainder of the year, and added that he saw no letup in new-issue supply, which posted a first-half record of $74 billion.
Mr. Glynn predicted retail buying, either directly or through the bond funds, would continue strong over the last six months. He cited the massive amounts of money returning to investor hands from high coupon bonds that have been advanced refunded with their calls coming due this year.
In very light secondary trading on Friday, tax-exempt dollar bonds managed gains of 1/8 point on a weaker-than-expected 0.4% rise in second-quarter gross national product. A gain of better than 1% had been widely expected.
A seasoned issue of Florida State Board of Education 7 1/4s of 2023, were quoted in late trading at 102 1/2-7/8 to yield 6.91% to the par call in 2004. New Jersey Turnpike Authority 7.20s, due 2018, were at 103-103 1/4 to yield 6.64% to the 1999 par call and 6.80% to the 1993 premium call.
New York LGAC 7s of 2016 were at 97 3/8-1/2 to yield 7.22% to maturity and Metropolitan Seattle 6 7/8s of 2031 at 97-97 1/2, where they returned 7.06%.
The short-term market was relatively active Friday morning, traders said, with the bid side slightly firmer.
New York State 5.40% March tax and revenue anticipation notes were quoted late in the day at 5.44% bid, 5.42% offered. Los Angeles County 5s were at 4.93% bid, 4.85% offered, and New Jersey 5s at 5%, 4.90%.
Note traders will be kept busy this week with Wednesday's competitive sale of $1 billion New York City tax anticipation notes.