Prices climbed confidently yesterday as municipals continued to dance to the bullish beat of the Treasury market.
Friday's ebullient tone, sparked by weak employment numbers, carried over into yesterday's session as the credit markets continued trekking to record low yields.
The municipal market opened unchanged to 1/8 point higher as cautious players waited for Treasury bond traders to show the way.
Citing lower gold and commodities prices and the continuation of it bullish outlook on interest rates, government traders pushed the 30-year Treasury bond to another record low of 5.85%. The long bond was quoted at 5.89% near the close of New York trading.
Municipal players took bonds up 1/2 to 5/8 point by session's end, based on the strength in Treasuries.
Yesterday's gains pushed the Municipal Bond Index up 15/16 to a record high of 105.08, driving the average yield to par call of the 40 bonds used in the index to a record low 5.47%.
In the debt futures market, the December municipal contract settled up 23/32 to 105.10. The MOB spread narrowed to negative 490 from negative 492 Friday. But market players expected even wider MOB spreads as efforts to hedge cash positions are punished by increased price gains in the Treasury market.
Looking ahead, the relentless push showed no signs of weakening, despite skeptical views on the high price levels.
"The fact that everyone is looking for a correction probably means we won't see one for a while," said one trader. "I can give you a bunch of reasons for a correction, but I can't tell you it's going to happen anytime soon."
Traders note that some municipals are as cheap as 90% of Treasury bonds, supply is light, and demand has recently been high.
With no clear signal, the Street is looking to new deals to gauge what buyers judge to be true value.
A test for current levels could come today with the sale of $691 million of Washington Public Power Supply System bonds by First Boston Corp. Market players said demand for the issue is expected to be strong, thanks to an acute shortage of paper.
Supply has thinned considerably during recent weeks, despite failing interest rates. The Bond Buyer calculated 30-day visible supply yesterday at $2.91 billion yesterday.
New issue activity was practically non-existent yesterday, but secondary trading was brisk, traders said.
Blocks of bonds changed hands at higher and higher levels as the day wore on, traders said.
The bullish tone is indicated by declining secondary supply, reflected in The Blue List of dealer inventory. which fell $199.2 million yesterday, to $1.02 billion.
In secondary dollar bond trading. Jacksonville Electric 5 1/4s of 2021 were quoted at 5.33% bid, 5.32% offered: Florida Board of Education 5.20s of 2019 at 98 3/8-7/8 to yield 5.31%; and Omaha PPD 5 1/4s of 2013 at 99 7/8-bid to yield 5.26%.
FBE 5 1/4,9 of 2023 were quoted at 99 1/4-lock to yield 5.30%. and Los Angeles Convention Center MBIA 5 1/8s of 2021 were quoted at 5.28% bid, 5.25% offered.
In the short-term note sector, yields were unchanged to five basis points lower on the day, traders said.
In late action, California Rans were quoted at 2.65% bid, 2.60% offered: Los Angeles Trans were quoted at 2.65% bid, 2.60% offered; and New York State notes were quoted at 2.45% bid, 2.40% offered.