Tax-exempt bond prices stabilized and even managed modes gains as last week came to a close against a background of confusing inflation data.
The economic picture is a little clearer, traders said. Most economists feel that the recession has either already bottomed out or is about o do so. But opinions remain divided as to inflationary pressures.
"There is no shortage of buyers," one trader said Friday. "They're still out there. It's just a question of yield," he added.
Last week's $2.8 billion long-term slate is a good example. Most of the deals were well received, but because of the uncertainty and the big calendar, yields had to be adjusted higher. Even in the negotiated sector, yields on many of the deals were sweetened five basis points and more to attract buyer interest.
The maximum yield for a $200 million Greater Chicago Metropolitan Watre Reclamation District, Ill., general obligation capital improvement offering was moved up five basis points to 7.16% in 2011 to get the deal done.
And over in the competitive arena, yields on a portion of a $97.6 million Georgia Tollway Authority state-guaranteed revenue bond issue were sweetened 10 basis points after the balance stalled at around $39 million.
On the week, traders reported that yields for both revenue and general obligation bonds were up 10 to 15 basis points. The increase in tax-exempt returns was significantly higher than those for government securities, where the return on the 30-year bond was up only five basis points.
The confusion on inflation revolved around Thursday's producer price index for May and Friday's consumer price report for the same month. the PPI came in higher than expected at 0.6% with a 0.4% jump in the core rate.
The CPI numbers were much more welcome with an increase of only 0.3% and a core rate rise of just 0.2%.
Although virtually all of last week's economic numbers pointed to an economy that was already on the mend, the consensus called for a moderate recovery and subdued inflation. On this theory, prices in the fixed-income markets firmed late Thursday and again on Friday.
After analyzing last week's data, Elliott Platt, director of economic research at Donaldson, Lufkin & Jenrette Securities Corp., said that the economy is "already in a recovery" and that the recession "probably ended in April."
At the same time, Mr. Platt believes that interest rates will close this year at "significantly lower levels, based on inflation remaining a moderate 4% over the next six months and a "sub-par economic expansion." The yield on the 30-year government bonds could get back to 8% by yearned, Mr. Platt suggested.
As for long-term tax-exempt volume, it has been running well ahead of last year's, up 18% in the first five months. Volume continued heavy in the first two weeks of June, during which $6 billion reached the market. At least $2.5 billion is on tap for this week and annual volume is running close to a $140 billion pace.
Gerald P. McBride, senior vice president and national manager at Prudential Securities Inc., said Friday that he is looking for the supply to keep coming in the second half of this year. Mr. McBride said he is a "firm believer in a slow economic recovery and very moderate inflation."
Against this type of economic, inflation, and supply background, Mr. McBride predicted that municipal bonds will be in a "stable, narrow trading range" over the rest of this year.
There will be no letup in supply this week, with at least $2.5 billion of bonds on tap and a 1991 high of $4.4 billion notes scheduled.
New York State is easily the leader in this week's short-term market, with its $3.9 billion tax and revenue note offering scheduled for pricing tomorrow. One note trader said Friday that he expects a pricing in the 4.90% to 5% range and that there is a "lot of business ready."
In secondary trading on Friday, dollar bond prices bounced back 1/4 point on average and as much as 3/8 selectively. Yields on high-grade serial bonds slipped about five basis points. Trading was light in both sector, market participants said.
In dollar bond trading, Florida State Board of Education 7 1/4s, due 2023, were quoted late in the day at 100 1/2-101 to yield 7.08% to the 2004 par call. On the week, this issue was off 1 1/2 points. New York LGAC 7s of 2016 closed the week down 1/2 at 93 3/4-94 to yield 7.54% to maturity. And in the more recently issued dollar bonds, Hawaii Airport AMT 7s of 2020 ended the week unchanged at 96 3/8-1/2, where they returned 7.29%.
Note traders reported very little activity in their sector, Thursday's $1.3 billion Los Angeles County tax and revenue anticipation note offering was reported to be in good shape with dealer offerings still at 4.55%. But the State of California market where the revenue anticipation notes are due the end of this month got as cheap as 5.75% and settled at 5.75% bid, 5.50% offered. The market for New York State December tax and revenue notes was at 4.30% bid, 4.25% offered. And New York City tax anticipation notes were trading around a 5.60%.
In prerefunded bond trading, issues with a 1995 call were bid at 5.95%, offered at 5.90%.
Pennsylvania Notes
Pennsylvania's annual tax anticipation note sale will jump to $1.7 billion this year from $1.4 billion in 1990, but delays in implementing the fiscal 1992 budget will prevent the sale from taking place in time to avoid delays in state aid payments, Gov. Robert P. Casey said Friday.
The state hopes to sell the Tans sometime in the next several weeks, but is prohibited from doing so until the Legislature passes a budget.
As a result, Gov. Casey on Friday mailed hundreds of thousands of letters to senior citizens, human services providers, school districts and universities, explaining that expected state aid payments due in July would probably be late, because of the lack of a 1992 budget.
He blamed the problem on slow-moving lawmakers, who ignored his plea to pass a budget by June 15.
The governor said the Tans will be issued immediately after the new budget is enacted, which is supposed to happen by the start of the new fiscal year on July 1.
