The municipal market advanced slightly in light trading, jogging after last week's sprint and easing into a shortened week.
Tax-exempts, however, did not keep pace with the Treasury market, where the 30-year bond posted gains of nearly 1/2 point.
"It didn't throb," one municipal trader said of yesterday's market. Although numerous requests for bids on small blocks of bonds appeared, secondary action was limited, he said.
In the short-term market, traders said municipals have reached an all-time low relatives to taxable securities. But investors from taxable markets have been slow to cross over.
"Compared to Treasuries, municipals are really a bargaikn," one head of a Wall Street tax-exempt money market desk said. "Usually you don't see this until the last two weeks of December." That is when firms sell municipal paper for more liquid money market instruments to dress up their balance sheets.
While the six-month Treasury bill was priced to yield 4.55% late yesterday. MIG-1 municipal notes with comparable maturities yielded 4.10%, for a 90% ratio. Lower-rated notes, such as the New York State paper maturing in March, were priced well above Treasuries, at 5.20%.
In general, yields on municipal notes as measured by The Bond Buyer's One-Year Note Index are at 94% of the yields on comparable Treasuries -- 4.43% compared with 4.72%. At any level above roughly 88% of taxable yields, analysts consider municipal paper cheap.
"It's been this way for months, and we're going into year-end," one tax-exempt money market player said. He attributed the phenomenon to new restrictions on tax-exempt money market funds, which have them reducing the average maturities of their holdings from 90 from 120 days, at the same time as issuance has been dominated by one-year fixed-rate securities.
Actively traded municipal notes were quoted mixed late yesterday, with better-rated securities improving as lower-tier prices deteriorated. Bids for Los Angeles Trans were 4.09%, and the securities were offered at 4.00% unchanged from Monday.
Bids for Texas Trans were quoted at 4.04% offered to yield 4.00%, compared with 4.05% bid and 4.02% offered Monday. The lower-rated New York State Trans, meanwhile, garnered bids of 5.30% and were offered at 5.20%, traders said.
Settlement of the $1.6 billion New York City deal could be forcing up yields on New York short-term paper as buyers of the city bonds liquidate money market holdings in preparation for the settlement next week, sources said.
Pre-refunded bonds traded to yield from 5.10% to 5.15%.
In follow-through business, the sale of $415 million in Metropolitan Transportation Authority bonds, which freed for trading yesterday, also continued to depress the New York municipal market, one trader said.
"It's a tainted bond, and it's going to remain that way for some time," he said. "It's a bond that people would just rather not have on their books right now. The MTA is causing some problems."
The authority's 6 1/2s of 2016 were off 22 basis points, with one bid quoted at 91, to yield 7.29%.
"The market felt queasy, but it's firmed up," said a trader. "People are putting a lot of bonds away and the lack of new issuance this week has been replaced by some selling, although it seems to be for accounting reasons instead of market reasons."
Despite the acrimony over the MTA deal, sources reported a stronger tone to the market, with the Street managing to sell significant portions of last week's mammoth new issue slate to permanent investors.
The Blue List of dealer inventory was reported up $91.4 million, reaching $1.67 billion from Monday's $1.58 billion, The 30-day visible supply totaled $2.25 billion.
Even with the reports of good going-away business, the Los Angeles Department of Water and Power once again postponed a $114 million refunding issue and cited lingering oversupply from last week's deluge of new issues.
The department's five board members approved a resolution in July allowing the refunding deal only with an interest rate cap of 6.50%. Bids on the issue were originally expected early last week.
With last week's $6.7 billion slate, the department had to postpone its refunding until bids below the cap are possible, department chief financial officer William G. Williams said.
"Conditions are such that it's not realistic for us to put that out to bid when we're that far away from that interest cost," Mr. Williams said. "We were 12 to 15 basis points away on Nov. 19, and we're even further away today." The deal was postponed until Dec. 3, and then shelved altogether late in the day. "It's been postponed indefinitely, because the market was so far away from 6.50%," Mr. Williams said. "We will eventually do a refunding."
The December municipal futures contract was quoted up 6/32 at 94 14uf32.
In secondary cash market activity yesterday, dollar bonds were quoted unchanged or slightly better.
Massachusetts Water Resources Authority 6 1/2s of 2019 were unchanged, at 98 3/4-99 1/4 to yield 7%. Pennsylvania Turnpike Authority 6 1/2s of 2013 were quoted at 96 5/8-3/4 to yield 6.79%, up from the 96 3/8 Monday.
In the negotiated arena, a Merrill Lynch & Co. syndicate repriced $39.8 million of Detroit's triple-B GO bonds, cropping back yields on the deal's 2011 maturity to 8.21% from 8.25%. The syndicate also restructured the offering by adding a 2002 maturity.
The issue includes serials maturing from 1994 to 2002, and a term bond in 2011 comprising the bulk -- $26.32 million -- of the loan. The bonds, which are rated triple-B by both Standard & Poor's Corp. and Moody's Investors Service, are callable at 102 in 2001.
Also yesterday, a Donaldson, Lufkin & Jenrette Securities Corp. syndicate was repricing a $100 million offering by the North Carolina Housing Finance Agency in order to satisfy institutional buyers, a banker said. The single family mortgage revenue bonds were tentatively priced early yesterday with serials yielding from 5.70% in 1997 to 6.35% in 2003 in one series comprising $31.35 million of the loan.
Another series, containing $42.8 million of the loan was subject to the alternative minimum tax and included a super-sinker maturity of nearly $16 million, priced to yield 6.50%. A banker said a repricing will be available this morning.
Looking forward in the negotiated sector, the New York State Local Government Assistance Corp. expects to sell $475 million of revenue bonds on Dec. 11, the corporation announced yesterday. Lehman Brothers and Goldman, Sachs & Co. are co-senior managers on the deal.
