Municipals stabilized by last Friday but will likely stick to a narrow price range during holiday time and move again only when underwriters sell the next wave of new deals.
Prices gained as much as 1/4 point last Thursday and again on Friday as the market began to recover after one of the most severe price corrections in years.
The market lost about four points last week as oversupply and a weakening dollar combined to drive bond prices lower.
Looking ahead, market players have begun to make progress on their heavy inventories and The Blue List fell $150.4 million to $1.59 billion by Friday.
But $4 billion of new deals are slated to be priced this week, and the shadow calendar remains robust. At least 21 negotiated deals, totaling $1.27 billion, were canceled last week, and are waiting in the wings.
The number of bonds priced by underwriters is likely to determine near-term price prospects.
"We've still got a lot of wood to chop, even though there is light a the end of the tunnel," said one market player Friday. "As long as underwriters don't get carried away, this should be a buying opportunity for the true investor. The market can handle around $1 billion a week, but bring $5 billion of new bonds and you'll scare everybody away."
The market is likely to get a break from issuance during the holiday week, and some deals may be postponed for a time, but issuers remain eager to capture still-low interest rates.
Looking to supply data, The Bond Buyer's 30-day visible supply on Friday rose $626 million, to $4,33 billion.
Currently scheduled for sale in the competitive sector this week are $123 million of Denver various-purpose bonds, $100 million of Dade County, Fla., revenue bonds, and $82 million of Los Angeles Municipal Improvement Corp. revenue bonds.
Dominating the negotiated calendar are $245 million of Austin, Tex., combined utility systems revenue refunding bonds, to be priced by Morgan Stanley & Co.; $224 million of Michigan State Housing Development Authority rental housing revenue bonds, to be priced by First Boston; and $200 million of Illinois Build Illinois revenue bonds, to be priced by PaineWebber.
The value of the dollar will also occupy center state with supply. The Treasury market lost ground on Friday as the dollar weakened again; municipals held steady, thanks mostly to inactivity.
The health of the economy, meanwhile, has taken a back seat to technical factors.
The importance of Friday's August employment report has diminished, although it will still be watched and a surprise number could move the markets.
Bond traders will also look for the results of July single-family home sales, to be released today: July leading indicators and construction spending, to be released Tuesday; and factory orders and inventories for July, to be released Wednesday.
Municipal prices were unchanged to 1/4 point higher in spots early Friday as the market added to a slightly better tone established on Thursday.
But the value of the dollar began to weaken by mid-session and the Treasury market headed into negative territory. Municipal market players retired from the action as a result, and the market maintained its gains.
In the debt futures market, the September municipal contract settled up 11/32, to 97.10.
Secondary dollar bond quotes were unchanged to 1/4 point better near the close.
In late trading, Chicago GO AM-BAC 5 7/8s of 2022 were quoted at 93 1/4-3/4 to yield 6.38%, Puerto Rico 6s of 2014 were quoted at 95 3/8-3/4 to yield 6.39%, and Florida Board of Education 6s of 2022 were quoted at 96-3/4 to yield 6.29%. Los Angeles Department of Water and Power 6s of 2032 were quoted at 95 3/8-3/4 to yield 6.31% and New York City Water Authority 6s of 2017 were quoted at 94-1/4 to yield 6.48%.
In the short-term note sector, yields were unchanged to as much as five basis points higher on the day, traders said.
In late action, Los Angeles tax and revenue anticipation notes were quoted at 3.15% bid, 3.10% offered, Texas Trans were quoted at 3.16% bid, 3.10% offered, and Wisconsin notes were quoted at 3.15% bid, 3.10% offered. New York City tax anticipation notes were quoted at 2.90% bid, 2.85% offered, and New York State Trans were quoted at 3.20% bid, 3.22% offered.