Municipal's early sojourn in positive territory yesterday ended as falling Treasuries dragged prices lower in lethargic pre-Independence Day trading.
The market is "quoted down a half with nobody doing [anything]," one trader said.
He said that while the market was down 1/2, the tone felt worse. Other traders surveyed yesterday pegged the market down anywhere from 1/2 to 3/4 points.
"The cash market got very quiet and weak, the bid side just evaporated," a second trader said.
A municipal analyst said dollar bond prices ended down 3/8 points to more in spots. Yields on high-grade issues rose by five basis points, he said.
Overall, the market opened 1/8 to 1/4 point higher, the analyst said. By noon, however, it gave back those gains plus another 1/4 point. Deeper into the afternoon, it surrendered an additional 1/8 to slightly more, he said.
A trader at one large New York firm said the municipal contract was perceived as rich in the early going, "so a number of arbs ran around trying to buy some cash."
While that helped the cash market, economic news that came out at 10 a.m., EDT, pushed the Treasury market lower, and the municipal contract fell as well.
The most troubling news was the Chicago Purchasing Management June index, which fell to 65.6% from 67.3% in May. However, the prices paid component climbed to 69.7% from 63.6%, and the employment index rose to 58.1% from 57.5% in May.
A reading above 50% indicates expansion in the manufacturing sector and a reading below 50% indicates a contraction. Players were concerned by the report's employment and inflation components.
The 30-year Treasury bond dropped more than a point after the purchasing manager's report came out and stayed there all day for a closing yield of 7.60%. In debt futures, the September municipal contract settled down more than 3/4 point to 88 25/32s. Yesterday's September MOB spread was negative 398, compared to negative 415 on Wednesday.
In the cash muni market yesterday, the extent of the damage was harder to assess than in Treasuries or futures, but issues were thought to be down 1/2 to 3/4 point.
"It's hard to tell because of the lack of trading going on," a trader said.
In addition to the July 4 holiday, the approaching end of the second quarter is also keeping a lid on activity, he said.
"It's quarter end too, which makes it a time when people don't want to do anything to ruffle the feathers," the trader said.
Another trader said when downsessions occur before a holiday, participants generally prefer to sit back and wait to see how the market shakes out upon their return.
In upcoming new issue action, the biggest negotiated offering listed is a $200 million Santa Margarita Water Control District, Calif., water revenue bond offering through Paine-Webber Inc. That offering is unlikely to arrive next week, however, a source familiar with it said.
The largest competitive deal for next week is a $65 million Howard County, Md., offering.
In other news, Standard & Poor's Corp.'s Blue List of municipal bonds declined $44.8 million yesterday, to $2.13 billion.
Today, the 30-day visible supply of municipal bonds totals $2.17 billion, down $320.5 million from yesterday. That comprises $1.10 billion of competitive bonds, up $142.8 million from yesterday, and $1.06 billion of negotiated bonds, down $463 million from yesterday.