Municipal prices fell 1/4 to 3/8 point Friday and the market braced for $7.4 billion in new supply this week as the year-end rush on the primary sector commences.
The Bond Buyer's 30-day visible supply jumped $4.4 billion to $8.06 billion on Friday, the second highest level since $8.09 billion, posted Nov. 8, 1986.
The supply pushed prices lower Friday and traders reported moderate bid-wanted flow as sellers tried to lighten up in anticipation of cheaper new issues. Quoted bonds were off as much as 3/8 point, but traders said a large seller could lose 1/2 point or more.
The supply increase came mostly from the negotiated sector, which totaled $5.8 billion, the highest since $6.68 billion was set for sale on July 15, 1986.
Of the 30-day visible total, $7.4 billion will hit the market this week, also a high for the year.
The negotiated sector is dominated by $1.6 billion New Jersey Turnpike Authority turnpike revenue refunding bonds nad weekly variable-rate turnpike revenue refunding bonds, to be priced by Merrill Lynch & Co.
New York City will offer $1.2 billion uninsured general obligation fiscal 1992 bonds, to be priced by J.P. Morgan Securities, while the Alaska Housing Finance Corp. will offer $300 million weekly variable-rate general mortgage revenue bonds, to be priced by Dean Witter Reynolds Inc.
The competitive sector features $353 million University of California Regents revenue bonds, $250 million Florida State Board of Education public education capital outlay bonds, and $132 million Washington Suburban Sanitary Dist., Md., various general construction refunding bonds.
The flood or new issues will attract most of the business done this week, and market participants expect activity to be muted in the secondary.
"The market didn't participate much last week because of supply, and it's going to have a hard time getting out of its own way this week," said James L. Kochan, head of fixed-income investment at Robert W. Baird & Co. "The best we can hope for is a relatively stable market. Underwriters are going to to have to be extremely careful bidding and pricing deals. They simply can't push here."
Although the supply is likely to limit secondary activity, many traders were anticipating good trading opportunities.
"It's going to be a very interesting week and there could be a lot of good value out there," said the head of one Wall Street trading operation. "People will certainly be concentrating on new issues, supply is huge, but there should be a lot of opportunities to get other things done, especially for smaller firms."
The weak economy continues to be a plus for the market, and the long-term view, Mr. Kochan said, is for even lower interest rates.
Municipal prices arent' likely to show much response to economic news, unless data catches traders by surprise.
But this week's data are likely to confirm the market's view that the economy continues to falter. The Commerce Department will release October housing starts on Wednesday and the Labor Department reports on jobless claims for the week ended Nov. 9 on Thursday.
The primary sector was dormant Friday, but Merrill Lynch & Co., senior manager for $490 million California State Public Works Board lease revenue current interest bonds, released the issue from syndicate restrictions. In late secondary trading, the 6 1/2s of 2019 were quoted at 6.70% offered, less 1/4. The bonds were originally reoffered to investors at 6.70%.
Morgan Stanley & Co., senior manager for $102 million Indiana State Office Building Commission correctional facilities program revenue bonds, freed to issue to trade.
In late secondary trading, the 6 3/8s of 2016 were quoted at 94 3/4-7/8 to yield approximately 6.890%, where they were originally priced to yield 6.796%.
In the debt futures market, the December municipal contract setled down 12/32 to 95.06. The December MOB spread widened to negative 172 Friday from negative 166 Thursday.
Despite the steady flow of supply, Standard & Poors' Blue List of dealer inventory rose only $ 19 million Friday, to $1.23 billion.
Secondary dollar bond prices were quoted down 1/4 to 3/8 point.
Denver Airport 7 3/4s of 2021 were quoted at 92 1/4-93 1/4 to yield approximately 8.36%. North Carolina Easter 6 1/2s of 2017 were quoted at 96 1/2-5/8 to yield 6.78%. Washington Public Power Supply System 6 7/8 of 2017 were quoted at 99 1/4-1/2 to yield 6.91% and MTA 7s of 2012 were quoted at 98 1/2-5/8, to yield 7.12%.
In short-term note trading, yields were unchanged to as much as five basis points higher on the day.
In late secondary trading, Los Angeles Trans were quoted at 4.10% bid, 4.08% offered. March New York State Trans were quoted at 4.98% bid, 4.93% offered, and New York City Rans were quoted at 5% bid, 4.95% offered. Texas notes were quoted at 4.10% bid, 4.05% offered in late trading.