Traders reported some progress on heavy new issuance yesterday, but at prices adjusted down 1/4 to as much as 1/2 point as the Street continued to bow under supply pressure.
The primary sector took on a plethora of sizable deals for the third session in a row, and underwriters reported mixed results.
Buyers could afford to pick through the slate of deals, forcing underwriters to price issues at lower levels to attract interest. The secondary, in turn, stagnated as the new issues were priced cheaper than bonds owned by dealers.
By sessions end, traders were forced to mark down prices on secondary bonds about 1/4 point on average, but as much as 3/8 to 1/2 point for other bonds.
Brightening prospects, Treasury prices rebounded from lows late in the session and the improvement helped to support tax-exempt prices.
But, in the debt futures market, the September municipal contract still settled down 5/32, to 97.27. The MOB spread widened to negative 267 from negative 257. Tuesday as municipals continued to falter, even in the face of higher government prices.
Texas Notes Lead Issuance
Texas awarded $1.5 billion of tax and revenue anticipation notes to eight groups after an aggressive round of bidding.
The majority of the notes were reoffered to investors at 2.75%.
Moody's Investors Service rated the issue MIG-1, Standard & Poor's Corp. rated the notes SP1-plus, and Fitch Investors Service rated the notes F-1-Plus.
Texas Deputy Treasurer John Bell said that 59 separate bids totaling $8.85 billion were submitted, giving the issue a net effective interest rate of 2.83% on the 364-day securities.
"It's in the range that we expected so we are very happy," said Mr. Bell. "The bids were so close that some of the numbers were tied up to seven numbers after the decimal."
J.P. Morgan Securities took down two sets of notes totaling $400 million; Morgan Stanley & Co. won $300 million; First Boston Corp. snared $300 million; PaineWebber Inc. won $250 million; Goldman Sachs captured $100 million; Lehman Brothers bought $100 million; and Nations Bank won $50 million.
Closing on the note sale is scheduled for Sept. 1.
In the long-term competitive sector, $321 million of San Francisco, Calif., sewer revenue refunding bonds were won by a PaineWebber Inc. group with a true interest cost of 5.921%.
An unsold balance was not immediately available yesterday.
Serial bonds were priced to yield from 3.60% in 1994 to 6% in 2008. A 2011 term was priced as 6s to yield approximately 6.13%. A 2015 term, containing $54 million of the loan, was not formally reoffered to investors.
The issue is rated A1 by Moody's and A-plus by Standard & Poor's.
In follow-through business, J.P. Morgan Securities Inc. reported an unsold balance of $102 million from $250 million Illinois full faith and credit general obligation bonds, sold Tuesday. Market sources said that bonds were sold as much as 10 basis points higher in yield than the original pricing levels.
Negotiated Underwriting
In new-issue activity in the long-term negotiated sector, Morgan Stanley & Co. priced $539 million of Commonwealth of Puerto Rico general obligation bonds.
The offering included $343 million of current interest bonds priced to yield from 3.80% in 1994 to 6.05% in 2006. A 2009 term was priced as 5 3/4s to yield 5.90% and a 2014 term, containing $211 million of the loan, was priced as 6s to yield 6.25%.
There also were $95 million of auction rate notes, which were not formally reoffered to investors, and $95 million yield curve notes priced with a 35-day coupon set at 9.21% in 2020.
The issue is rated Baa1 by Moody's and A by Standard & Poor's, except for the 2009 maturity, which is insured by the Municipal Bond Investors Assurance Corp. and triple-a rated by Moody's and Standard & Poor's.
Goldman, Sachs & Co. priced and repriced $308 million Washington general obligation and GO refunding bonds to raise yields on term maturities.
At the repricing, term bond yields were raised by about two basis points.
The final reoffering scale included $300 million of various-purpose general obligation bonds priced to yield from 2.90% in 1993 to 6% in 2007. A 2012 term was priced as 5 3/4 to yield 6.14% and a 2017 term was priced as 5 3/4s to yield 6.24%. There also was $8 million motor vehicle fuel tax GOs priced to yield from 2.90% in 1993 to 6% in 2007, 6.14% in 2012, and 6.24% in 2017.
The bonds are rated double-A by Moody's and Fitch Investors Service, and the managers said they expected Standard & Poor's to also rate the bonds AA.
Smith Barney, Harris Upham & Co. tentatively priced $149 million Michigan State Hospital Finance Authority hospital revenue and refunding bonds for the Henry Ford Health System.
The offering included serial bonds priced to yield from 3% in 1993 to 6.15% in 2009. A 2012 term was priced as 6 1/8s to yield 6.212% and a 2017 term, containing $26 million of the loan, was priced as 5 3/4s to yield 6.227%.
The bonds are rated Aa by Moody's Investors Service and AA by Standard & Poor's Corp.
The First Boston Corp. tentatively priced $100 million Citrus County, Fla., pollution control refunding revenue bonds.
The offering included $90 million of bonds for the Florida Power Corp. Crystal River Power Plant project, priced at par to yield 6.30% in 2022. There also was $10 million of bonds for the Florida Power Corp. Anclote Power Plant Project, priced at par to yield 6.30% in 2022.
The bonds are rated A1 by Moody's and A-plus by Standard & Poor's.
Secondary Market
Trading was subdued as new issues came at cheaper levels than most secondary product, forcing market players to the sidelines.
In secondary dollar bond trading, prices were quoted down 1/4 point on average, but traders said some bond prices lost as much as 1/2 point.
In late action, Florida Municipal Power FGIC 5.70s of 2016 were quoted at 94-1/2 to yield 6.18% and Seattle Sewer Authority 6.20s of 2032 were quoted at 97 3/4-98 1/4 to yield 6.35%.
In the short-term note sector, yields were mixed on the day.
In late secondary trading, Iowa Trans were quoted at 2.95% bid, 2.90% offered; Los Angeles Trans were quoted at 2.95% bid, 2.90% offered; and Wisconsin notes were quoted at 2.95% bid, 2.90% offered. New York City Tans were quoted at 2.95% bid, 2.90% offered and New York State Trans were quoted at 3.05% bid, 3% offered.
L.A. DEWAP Deal Pulled
The Los Angeles Department of Water and Power was forced to pull $185 million of refunding revenue bonds Tuesday because negative arbitrage reduced the expected level of present value savings.
Department officials are expected to announce a new date of sale later this week.
Donaldson, Lufkin & Jenrette Securities Corp. had originally priced the deal and reported all bonds sold by session's end before the deal was pulled.
Serial bonds were priced at par to yield 6.30% in 2025, 2027, and 2029. The issue was rated double-A by Moody's and Standard & Poor's.
