Strong investor demand prompted underwriters to lower yields on nearly $1.2 billion on new deals yesterday, but secondary prices finally slowed from their meteoric rise.
After a month of gradual price gains and a strong three-day rally sparked by last Thursday weak jobs report, credit market prices paused for the first time yesterday.
Treasury market prices were slightly lower thanks to an auction, while municipals were narrowly mixed on the day.
Tax-exempt traders reported a strong tone, but the sudden halt in the rally ignited speculation about whether prices had peaked.
"People are a little nervous," one trader acknowledged. "They aren't willing to bail out of positions, but you can feel a defensiveness building into the current wisdom. But until you have a concrete reason, it should continue to go higher."
But some traders said the pricing of a deal by the Salt River Agricultural Improvement and Power District of Arizona suggested the market may have hit a top.
"SALTs often are priced when the market is at the ceiling," one market source acknowledged. "People remember that, and it had them a little spooked."
Most prices were unchanged, but some dollar bond prices were quoted 1/8 point easier late in the session.
The majority of price losses occurred in the futures market, where the September municipal futures contract settled down 3/32, to 97.13. The MOB spread widened to negative 166 from negative 164.
Sizable New Deals
Despite the nervous tone, investors again queued up for new bonds, and underwriters were able to raise prices on most deals in the primary sector.
Leading negotiated action, Bear, Stearns & Co. priced and repriced the $517 million SALTS to lower yields.
At the repricing, some serial yields were lowered by five to 10 basis points, while the 2013 term bond yield was lowered by two basis points and the 2025 term bond yield was decreased by five basis points.
The final reoffering scale including serial bonds priced to yield from 2.40% in 1993 to 6.05% in 2009.
A 2013 term was priced as 6s to yield 6.175%; a 2019 term was priced as 5 3/4s to yield 6.233%; a 2025 term, containing $135 million of the loan, was priced as 5 1/2s to yield 6.228%; a 2027 term was priced as 6 1/4s to yield 6.276%; and, a 2030 term, containing $111 million of the loan, was priced as 5s to yield 6.219%.
The managers said they expected the issue to be rated double-A by both Moody's Investor Service and Standard & Poor's Corp.
In other action, Merrill Lynch & Co. as senior manager priced $288 million Michigan state trunk line fund bonds and then boosted the size of the issue to $353 million and lowered some yields.
At the repricing, serial yields were lowered by five basis points and the 2021 term bond yields was lowered by five basis points.
The final reoffering scale included $253 million Series A bonds and $31 million Series B-1 refunding bonds priced to yield from 5.15% in 1999 to 5.80% in 2004. A 2021 term bond, containing $163 million of the loan, was priced as 5 1/2s to yield 6.20%. Capital appreciation bonds were priced to yield from 6.15% in 2005 to 6.35% in 2012. About $68 million Series B-2 refunding bonds were priced to yield from 5.15% in 1999 to 6.05% in 2007, 6.14% in 2012, and 6.192% in 2022.
The CABS are insured by the AMBAC Indemnity Corp. and triple-A rated by Moody's, Standard & Poor's, and Fitch. The remainder of the loan is rated A1 by Moody's and double-A-minus by Standard & Poor's and Fitch.
Another syndicate led by Merrill Lynch as senior manager priced and repriced $165 Michigan comprehensive transportation bonds.
Serial bond yields were lowered by five to 10 basis points, while term bond yields were lowered by about six basis points.
The final reoffering scale included $38 million of Series A bonds priced to yield from 4.50% in 1996 to 6.05% in 2007, 6.14% in 2012, and 6.19% in 2022.
Also, $127 million Series B refunding bonds were priced to yield from 4.50% in 1996 to 6.05% in 2007 and 6.14% in 2011.
The bonds are rated A1 by Moody's, AA-minus by Standard & Poor's, and AA-minus by Fitch.
Bear Stearns also priced and repriced $133 million of New York State Medical Care Facilities Finance Agency hospital and nursing home FHA-insured mortgage revenue bonds.
Yields were lowered by five basis points on all maturities.
The offering included a 1997 term priced as 4.85s at par, a 2002 term priced as 5.65s at par, and a 2022 term, containing $92 million of the loan, priced as 6.20s to yield 6.274%.
The issue is rated AAA by Standard & Poor's.
In follow-through business, Lehman Brothers, senior manager for $278 million Georgia general obligation bonds priced Tuesday, reported an unsold balance of $14 million rate in the session.
Secondary Market
Traders reported moderate activity yesterday, adding that there were numerous bid-wanted lists and some large bonds blocks circulating in the Street.
Late in the session, $51 million Triborough Bridge and Tunnel Authority AMBAC 6 1/4s of 2012 were offered at 100 1/2, a yield of approximately 6.18%.
In other secondary dollar bond trading, prices were narrowly mixed on the day.
In late action, East Bay Municipal Utility District 6s of 2012 were quoted at 98 3/8-1/2 to yield 6.14% on the bid-side, New York City Water Authority AMBAC 6.20s of 2021 were quoted at 99 1/2-3/4 to yield 6.23%, and New Jersey Highway Authority 6 1/4s of 2014 were quoted at 100 1/8-3/8 to yield 6.23%. Texas Municipal Power Agency MBIA 5 3/4s of 2012 were quoted at 94 3/4-7/8 to yield 6.21%, and New York City Metropolitan Transportation Authority MBIA 6 1/4s were quoted at 100-1/2 to yield 6.25%.
Traders of short-term securities said there was little activity yesterday, with yields of the actively traded names decidedly mixed.
"It was tough to get a read today," said a trader. "You'd be looking at one deal and the yield dipped a couple of basis points and another would be up a couple ticks."
The trader said that investor demand for paper continues strong with good demand expected for today's offering of $380 million low a tax and revenue anticipation notes priced by a group led by Goldman, Sachs & Co.
Late in the session, Los Angeles Trans 3 3/4s were quoted at 2.88% bid, 2.85% offered; New York City Tans 3 1/4s were quoted at 2.65% bid, 2.60% offered; San Bernadino Co., Calif. Trans were quoted at 3.05% bid, 2.95% offered; and New York State Trans 3.65s were quoted at 2.73% bid, 2.68% offered.
Negotiated Pricings
Goldman Sachs priced $68 million Vermont Municipal Bond Bank bonds.
About $37 million of the loan was priced to yield from 3.40% in 1993 to 6.10% in 2005 and 6.35% in 2018. The remainder of the loan was priced to yield from 2.90% in 1992 to 6.10% in 2005 and 6.35% in 2019.
The managers said they expected the issue to be rated A by Moody's and A-minus by Standard & Poor's.
Morgan Stanley & Co. priced $55 million of Massachusetts Health and Educational Facilities Authority revenue bonds for the Sisters of Providence Health System.
Serial bonds were priced to yield from 5% in 1995 to 6.25% in 2002, 6.676% in 2008, and 6.75% in 2022.
The issue is rated Baal by Moody's and BBB by Standard & Poor's.
