Municipals cruised higher yesterday, again outpacing the Treasury market, as investors snapped up bonds, including a new $726 million New York City bond deal.
Demand for bonds increased for the fourth straight session as buyers queued up ahead of the rush anticipated after the Jan. 1 redemptions and various payments traders said.
Secondary traders reported brisk action and some sizable blocks of bonds changed hands. Tax-exempt cash bonds opened up 1/8 point higher, while futures prices jumped 11/32. Treasury prices gyrated throughout the session but municipals continued higher. By session's end, prices were quoted up 1/2 point on average, while gilt-edged high-grade bond prices were quoted up about 3/4 point. Some dollar bonds made gains of 11/8 point and more.
Reflecting increased demand for bonds, The Blue List of dealer inventory fell $151 million, to $1.28 billion.
In secondary dollar bond trading, San Jose 5s of 2020 were quoted at 5.38% bid, 5.36% offered; New York Power Authority 51/4s of 2018 were at 981/4-1/8 to yield 5.37%; and a Chicago GO FGIC 51/2s of 2024 were 5.60% bid, 5.55% offered.
Also, Chicago O'Hare MBIA 5s of 2018 were quoted at 5.45% bid, 5.43% offered; Florida State Board of Education 51/8s of 2022 were at 961/2-5/8 to yield 5.36%; and Orange and Orlando FGIC 51/8s of 2020 were 5.40% bid, 4.37% offered.
In debt futures, the March municipal contract settled up 5/32 at 103.08. The contract had made a high of 103.16 and a low of 102.30. The MOB spread narrowed to negative 413 from negative 418 on Monday.
In the primary sector, dealers also reported strong demand, with some offerings heavily oversubscribed.
Topping the negotiated slate, a 29 member syndicate led by Prudential Securities Inc. tentatively priced about $656 million various bonds for New York City.
Sources said the tentative offering included $459 million Series E and F general obligation bonds priced to yield from 3.70% in 1995 to 5.95% in 2014. Bonds in 2000 and 2003, totaling about $35 million, were not formally reoffered to investors and were instead priced as derivatives.
The 1996 maturity, totaling $22 million, was priced as a new derivative product by Goldman, Sachs & Co. The firm structured the bonds as Binary London Interbank Offered Rate, or LIBOR, notes. The city also entered a swap with Goldman to lock in a synthetic fixed rate of 4.00%.
The city considered several other derivative structures, but none offered sufficient savings over ordinary bonds, according to Roger Anderson, the bureau chief of debt management for the city.
The city plans to price another $231 million of long-term, variable rate debt when the fixed rate debt deal closes. The long-term, variable rate debt will be backed by extendable letters of credit.
The New York City deal included $150 million Series G GO refunding bonds priced to yield from 3.70% in 1995 to 5.98% in 2017. Bonds in 2003, totaling $7 million, were not formally reoffered and were priced as derivatives.
Finally, there were $47 million capital appreciation bonds, known as ~mini bonds' prited to yield from 4.15 in 1996 to 6.08% in 2018. The bonds are non-callable, except for the 2008 and 2010 maturities.
The deal is rated Baa1 by Moody's Investors Service and A-minus by Standard & Poor's Corp., and Fitch Investors Service.
Elsewhere, Smith Barney Shearson priced, repriced, and restructured $180 million Arizona Transportation Board subordinated transportation excise tax revenue bonds for the Maricopa County Regional area road fund.
At the repricing, the amount of the issue was boosted from $176 million and serial bond yields were lowered by five to 15 basis points.
The final scale included serial bonds priced to yield from 3.25% in 1995 to 4.85% in 2005.
The issue is AMBAC-insured and rated triple-A by both Moody's and Standard & Poor's.
Smith Barney also priced and repriced $127 million Dekalb County, Ga., water and sewer revenue bonds.
At the repricing, serial bond yields were lowered by five basis points. Term bond yields were lowered by five basis points in 2014 and by six basis points in 2023.
The final scale included serial bonds priced to yield from 2.65% in 1994 to 5.25%in 2011. A 2014 term was priced as 51/8s to yield 5.325%, and a 2023 term, containing $72 million, was priced as 51/4s to yield 5.42%.
The issue is rated double-A by Moody's and Standard & Poor's.
In light competitive new issue action, Merrill Lynch & Co. won $180 million New York State Dormitory Authority state university educational facilities revenue bonds with a true interest cost of 5.539%.
The firm reported an unsold balance of about $38 million late in the day.
Serial bonds were reoffered to investors at yields ranging from 3.50% in 1995 to 5.50% in 2010. A 2013 term was reoffered as 53/8s to yield 5.55% and a 2023 term, containing $90 million, was reoffered as 5.40s for a return of 5.60%.
The issue is rated Baal by Moody's, BBB-plus by Standard & Poor's, and A by Fitch.
