NEW YORK The municipal bond market reversed earlier gains, fading to unchanged levels due to volatile Treasuries.
Government bond prices fluctuated during the first half of the day, dropping briefly on the back of higher-than-expected June durable goods orders, then recovering and sliding into negative territory again. Equities firmed.
The Commerce Department said June durable goods orders rose 2.1%, compared to an unchanged level in May, which was revised upward from a previously reported decline.
John Ryding, senior economist at Bear, Stearns & Co., said a jump in June durable goods orders supported the expectation for a stronger economic growth in the second half of the year.
"If you have a combination of rising orders and declining inventories, it sets the stage for a rebound in production because you can't keep meeting demand, which appears to be rising, from running down inventory," Ryding said. "There comes a point when you have to start producing more. All of that argues positively for a third quarter outlook for manufacturing."
In other economic news, June new home sales rose 4.7% to 1.16 million, while existing home sales fell 0.3% to 5.83 million.
The latest homes sales data shows that the housing market is likely to remain strong even as mortgage rates back up, because of tight supply, meantime consumers will continue to benefit from rising house prices, according to Ryding.
"Existing home sales market tells us that home prices continue to make rapid gains and housing turnover remains high and that combination throws off a lot of capital gains for consumers," he said.
Recently, the two-year Treasury note was quoted up 1/32 to yield 1.52%, the 10-year note was quoted up 2/32 to yield 4.16%, and the 30-year bond was quoted down 2/32 to yield 5.10%.
In the municipal arena, traders said activity has slowed down due to volatility in Treasuries and tax-exempt bonds were quoted at unchanged levels.
"We started out with a more positive tone, but ran out of gas," a trader in New York said. "Now it's all over the place, it's quiet. We are probably going to wind up unchanged on the day."
Municipal bond funds had outflows of $492 million during the week ended July 23, after receiving $194 million the prior week, according to a report by U.S. Bancorp Piper Jaffray. It was the first week of outflows after 13 consecutive weeks of inflows to municipal bond funds.
Taxable bond funds lost $666 million after gaining $1.49 billion the prior week. Most outflows came from government bond funds and investment grade corporate funds.
Equity funds had inflows of $3.21 billion after seeing inflows of $852 million the prior week, while money market funds had inflows of $1.10 billion for the week ended July 23 after losing $17.71 billion the prior week, the report said.
Looking ahead to new issue volume, The Bond Buyers 30-day visible supply calendar rose $1.55 billion to $8.51 billion. The total comprises $3.24 billion of competitive loans and $5.26 billion of negotiated new issues.
Disclosure
The Municipal Securities Rulemaking Board reported 31,624 trades Thursday, comprising 12,158 separate issues. Of all bonds traded, 1,820 changed hands at least four times. Most active was Dallas Fort Worth International Airport revenue 5s of 2032, which traded 388 times, hitting a high of 101.947, a low of 97.25 and an average of 98.176.
