The barometer of dealer inventories swelled to the highest level since 1987 yesterday as a heavy market tone pushed municipal prices down.
Standard & Poor's the Blue List, which tracks dealer inventories, reached $2.339 billion yesterday, the highest level in more than seven years.
The last time the Blue List was higher was April 15, 1987, when it totaled $2.466 billion. That was also when the fixed-income markets experienced one of their worst times. The Blue List has now risen for 10 straight days, for a cumulative increase of $927 million.
"There's an overhang of municipals, and we're underperforming govies," one seasoned trader said.
"The market is heavy," a second trader said. "Some of the dealers I undentand have been told to lighten up there positions."
He added,. however, "I've seen it worse -- the market still has some liquidity."
The trader cited a July 4th holidayshortened week ahead, possible quarter-end pressures, and a rumor that the June employment report will bring bad news for the bond market.
A municipal analyst also cited a heavy tone.
"I don't think anybody can get out of his or her bonds at a decent price," the analyst said.
Dollar bonds were quoted off 1/8 point overall, while high-grade issues ended unchanged, he said. Secondary activity was light.
The 30-year Treasury bond closed unchanged at a yield of 7.39%. In the debt futures market, the September municipal contract closed down more than point to 90 25/32s. Yesterday's September MOB spread was negative 415 compared to negative 402 on Wednesday.
Returning to the subject dealer inventory, "the overall effect of the Blue List is going to continue to be very negative on the market," said Robert W. Chamberlin, a senior vice president and supervisory municipal analyst at Dean Witter Reynolds Inc.
"Retail can't absorb [municipal debt] as fast as institutions and nontraditional buyers can sell it," Chamberlin said. He added, however, "We're doing fairly decent retail business."
While retail and its representatives are the market's mainstay, institutions help provide leadenhip, Chamberlin said.
Nowadays, "the institutions are not providing leadership," Chamberlin said. "They are not constructive on the market."
At Dean Witter, however, the pros are advising retail clients to buy municipals now ahead of July 1 when, according to Dean Witter figures, $32.5 billion of municipal debt will mature or be called.
While some may believe the market has already factored in the July 1 date, Chamberlin thinks "they're not paying attention."
Also fattening the Blue List is new debt that is not getting placed, Chamberlin. While three or four weeks ago, the placement ratio for debt out of syndicate was 90%, it is now 70% to 80%, he said.
"So the Blue List is the repository for all the woes of the market," he said.
A broker's broker yesterday cited "a ton of bonds" weighing heavy on the municipal market.
He added, however, that if the government market can keep a good bid to it, and the U.S. dollar and the Commodities Research Bureau's index can behave themselves, the municipal market will stabilize over the long run. He added, however, that he does not see that happening any time soon.
In other news, the 30-day visible supply of municipal bonds for today totals $3.24 billion, down $635 million from yesterday. That comprises $1.26 billion of competitive bonds, up $187 million from yesterday, and $1.98 billion of negotiated bonds, down $822.4 million from yesterday.