Over $2 billion of new deals were met by good investor demand yesterday and secondary prices improved marginally.
But the improved tone was tempered by widespread caution and some obvious signs of bearishness. Continued selling and year-end defensiveness left the market with a widely mixed sentiment and a spy vs. spy psychology. For example, a large firm based in New York put $64 million New York Port Authority of New York and, New Jersey 5.20s of 2020 out for the bid during the morning session. The bonds were offered at 5.40% less 1/4, but did not trade, sources said.
Traders said the bid for bonds was slightly better yesterday, thanks mostly to a slight rebound in the Treasury market. Late in the day, some players clamored that buyers were more eager to buy bonds to beat the typical end-of-the-year rush for paper. They argued the market would continue to see a better bid, lifting it out of the recent down draft.
Yesterday's new issues appeared to reflect bullish notions. Dealers bid aggressively $1.3 billion New Jersey short-term notes, showing enough demand to bid for $11.2 billion of the securities, according to the state Treasurer's office.
In the long term sector, Merrill Lynch & Co. was able to raise many prices on $674 million bonds for the San Jose Redevelopment Agency, and Lehman Brothers reported all bonds sold from the $204 million Los Angeles Community Redevelopment Agency deal it won in the competitive sector.
Secondary trading, meanwhile, was light as the primary sector drew most of the attention. Dollar bond prices showed gains of 1/8 to 1/4 point, but the market was widely mixed overall, traders said. In the debt futures market, the March municipal contract settled Up 6/32 to 101.06. The MOB spread widened to negative 447 from negative 440 on Tuesday as municipals lagged the government market's gains.
A firm Treasury market gave tax-exempts a leg up, spurred on by some favorable economic news. The tone improved soon after the opening when the National Association of Purchasing Management said its index rose 1.9 percentage points to 55.7% in November. Traders were encouraged by the fact that the index came in lower than Tuesday's Chicago area purchasing report and also by the employment component, which increased to only 46.1% from 45.55%, indicating manufacturing employment is still contracting.
Reflecting the better business flow in the secondary, The Blue List of dealer inventory fell for the fifth straight day. slipping $19.3 million yesterday to $1.52 billion yesterday.
In the short-term sector, New Jersey awarded the $1.3 billion tax and revenue anticipation notes in eight pieces to six different firms, for a net interest cost of 2.2869%.
Dealers reoffered the notes to investors at yields ranging from 2.15% to 2.20%. The market was quoted late in the day at 2.19% bid, 2.15% offered. But, several market sources said that notes for January settlement may have traded as low as 1.85%.
New Deals
The state offered the notes in three series, with two featuring variable-rate structures tied to swaps. But the entire issue was awarded to the fixed-rate bidders, which were able to offer better rates.
One bidder on a variable-rate structure, Credit Suisse, was just one basis point shy of winning a piece of the deal, according to a state summary of the bids.
Robert Lurie, the state's director of public finance, said a total of $11.3 billion in bids were made for the $1.3 billion in notes available.
First Boston Corp. won $300 million bidding a NIC of 2.234%; Bear, Steams & Co. took $100 million with a NIC of 2.2494%; First Boston won a second portion, totaling $200 million, bidding a NIC of 2.2685%; Lehman Brothers was awarded $200 million with a NIC of 2.3087%; $50 million went to PaineWebber, at 2.3180%. Smith Barney Shearson Inc. won $25 million at 2.3183%; Merrill Lynch Capital Markets won $75 million at 2.3260%; and Lehman was awarded a second piece, totaling $350 million, at a net interest cost of 2.3260%.
Moody's Investor's Service rated the issue MIG-1 and Fitch Investors Service rated it F1-plus.
In the long-term negotiated sector, an 18-member syndicate led by Merrill Lynch & Co. priced, repriced, and restructured $674 million tax allocation bonds for the San Jose, Calif., Redevelopment Agency.
At the repricing, serial bond yields were lowered by 30 basis points in 1994; by 10 basis points in 1995 and 1996; by five basis points from 1997 through 1999; by two basis points in 2015; and by three basis points in 2024. Yields were also lowered by 10 basis points in 2000 and 200 1; by five basis points from 2002 through 2006. Yields were raised by nine basis points in 2021. A 2016 maturity replaced a 2017 term; a 2020 maturity replaced a 2021 term; and a 2022 term was added to the scale.
The final offering, to be used for the merged area redevelopment project, included serial bonds priced to yield from 2.50% in 1994 to 5.54% in 2015. A 2016 term, containing $28 million of the loan, was priced with a coupon of 5.25% for a return of 5.62%; a 2020 term, containing $117 million, was priced as 5s to yield 5.62%; a 2021 term, containing $50 million, was priced as 5s to yield 5.74%; a 2022 term was priced as 4 3/4s to yield 5.72%; and a 2024 term, containing $83 million, was priced as 4 3/4s to yield 5.60%.
Bonds from 2006 through 2011, and 2015 are non-callable.
Bonds due 2012, 2013, and 2014 totaling about $73 million were not formally reoffered and were priced as derivatives, floating rate securities and corresponding inverse floating rate securities.
Bonds due in 2021 and 2022 are rated single-A by Moody's, Standard & Poor's Corp., and Fitch. The remainder of the deal is insured by the Municipal Bond Investors Assurance Corp. and rated triple-A by Moody's, Standard & Poor's Corp., and Fitch.
Elsewhere, Goldman, Sachs & Co. priced and repriced $125 million Texas Water Development Board state revolving fund senior lien revenue bonds.
At the repricing, serial bond yields were lowered by five basis points from 1997 to 2001 and in 2007 and 2008.
The final scale included serial bonds priced to yield from 3.85% in 1997 to 5.45% in 2012. A 2015 term, containing $28 million. was priced as 5 1/4s to yield 5.50%.
The bonds are rated Aa by Moody's and AAA by Standard & Poor's.
