New deals were priced aggressively and secondary prices rose yesterday as the market began to feel the impact of increased demand and diminished supply.
By session's end, prices were quoted up 1/4 on average, traders said.
But in the debt futures market, the September municipal contract settled down 1/32 to 101.16. The September MOB spread widened to negative 351 from negative 350 Monday, as the Treasury contract edged past the municipal market.
Upper high-grade new issues outpaced secondary market gains. New bonds were priced at yields five basis points lower on the day, while lesser high-grade new issues were priced to yield about seven basis points lower on the day.
Buyers have stepped up to new deals over the last week, eager to take bonds at the higher prices because the availability of new issues is decreasing at the same time they have more and more cash to invest.
Bond funds, the major buyers of tax-exempts, are experiencing a marked increase in cash flows, thanks mostly to the prospect of higher federal income taxes under the Clinton White House. Adding to increased demand is an estimated $39 billion of cash expected to hit the market during the next few weeks, thanks to coupon payments, July 1 bond calls, and maturing bonds.
"Cash flows into our fund remain strong and I believe they will be stronger still in July." said Ronald H. Fielding, chairman of The Rochester Funds. "Many people are worried about finding enough paper. The supply of bonds is likely to dry up next week and the funds are going to continue to take in money everyday."
New issuance is slowing, as it typically does during the summer months. The Bond Buyer calculated 30-day visible supply at $5.82 billion yesterday, down from $5.98 billion Monday.
Many municipal bonds are still relatively cheap to Treasury and corporate bonds, making them even more attractive to certain kinds of investors, Fielding added.
Against this canvas, traders yesterday painted an increasingly bullish picture of the market's underlying strength.
"The technicals cannot be ignored," a trader said. "There is definitely a need for bonds now that inflation worries are behind us. We're starting to feel the July trade kick in."
But secondary cash traders continued to decry the lack of volatility and opportunity to trade bonds, especially in a bullish marketplace.
Illiquidity is reflected by secondary price jumps which lag new issue price levels. For example, secondary bond prices were 1/4 point higher by mid-session in moderate action yesterday, but a 1/4 point behind many new issue bond prices.
The scenario has held true for what some market players term an interminable length of time.
New Deals
Of the more aggressively priced deals of the day, Prudential Securities Inc. priced and repriced $150 million non-callable consolidated refunding bonds for the Port Authority of New York and New Jersey.
At the repricing, yields were lowered by 20 basis points in 1994 and by 10 basis points on the rest of the maturities in the scale.
The final offering included serials priced to yield from 2.40% in 1994 to 5.30% in 2012.
Market observers said bonds through five years were priced at triple-A levels and from six years out bonds were priced at yields five basis points away from triple-A levels.
The issue is rated A1 by Moody's Investors Service, AA-minus by Standard & Poor's Corp., and AA-minus by Fitch Investors Service.
A Prudential officer said the offering saw retail demand top to bottom, bond funds in the long end, and trust department demand from five years out.
Port Authority paper often sees strong demand because it has a good reputation on the Street, is tax-exempt in New York and New Jersey, and carries a better rating than New York State paper.
One bond fund manager also noted the decreasing amount of new supply also may have fueled interest for the deal.
John E. Haupert, treasurer of the Port Authority of New York and New Jersey estimated the present value savings at between $12 million and $13 million.
The Port Authority, as part of the transaction, took the unusual step of assembling a 33 member syndicate comprised of three senior managers and 30 firms as co-managers, 13 of which were classifed as firms owned by minorities and women.
Haupert said the authority rewards regional and firms owned by women and minorities that actively trade and support its bonds in the secondary market once a year with such a deal.
The program, begun four years ago, is also an attempt by the authority to broaden the distribution of its bonds to include retail investors, and involve more firms owned by minority and women in its syndicate.
Haupert said 45% of the $150 million issue will be split three ways, with Prudential, Dean Witter Reynolds Inc. and Merrill Lynch & Co. each getting a 15% share. The Port Authority will then allocate the other 50% of the issue to the 30 co-managers.
Each of the co-managers will receive between 1% and 3% of the issue, or between $1 million and $4.5 million of bonds, Haupert said.
Under the terms of the program, the authority will based its bond allocation on a firm's ability to place bonds with retail investors, and its record for supporting Port Authority bonds in the secondary market.
L.A. County Notes
Topping the short-term calendar yesterday, a 13-member syndicate led by Lehman Brothers priced $1.9 billion tax and revenue anticipation notes for Los Angeles County, Calif.
The offering included $1.5 billion Series-A fixed-rate Trans, due April 15, 1994, priced with a 3% coupon to yield 2.55%.
The firm said it received the verbal award at the original price level.
There also was $350 million Series-B flexible-rate notes priced and remarketed by First Boston Corp.
The offering is rated MIG-1 by Moody's, SP-1-plus by Standard & Poor's, and F-1-plus by Fitch.
Also priced in the short-term market were $375 million New York City Water Authority bond anticipation notes by WR Lazard, Laidlaw & Mead Inc., a minorityowned firm.
The notes, due June 28, 1993, were priced with a coupon of 2.75% to yield 2.40%. The offering is rated MIG-1 by Moody's, SP-1 by Standard & Poor's, and F-1 by Fitch.
The offering marked the first issue of Bans for the authority, said Alan Anders, the water authority's treasurer. The authority sells bonds in May or June every year, but decided this time to take advantage of low short-term rates by selling notes, he said.
The offering also marked the first time a minority-owned firm served as book-runner on a New York City related debt offering. The firm was one of three senior managers appointed by Mayor David N. Dinkins and city Comptroller Elizabeth Holtzman to the water authority's syndicate in March.
Holtzman's office said in a release that the sale of the BANs would save the city about $4.5 million over the next nine months.
In the long-term negotiated arena, Lehman Brothers also priced and repriced $453 million revenue and refunding revenue bonds for Seattle, Wash., Municipal Light and Power.
Serial bond yields were lowered by five to 10 basis points, while term bond yields were lowered five basis points.
The final offering included serial bonds priced to yield from 2.55% in 1994 to 5.45% in 2008. A 2010 term, containing $26 million of the loan, was priced as 5.45s to yield 5.55%; a 2013 term was priced as 5 1/2s to yield 5.635%; and a 2018 term, containing $26 million of the loan, was priced as 5 3/8s to yield 5.703%.
The bonds are rated double-A by Moody's and Standard & Poor's.
In other action, Donaldson, Lufkin & Jenrette Securities Corp. tentatively priced $207 million noncallable special obligation refunding bonds for the Rhode Island Depositors Economic Protection Corp. late in the day.
Serials were priced to yield from 5% in 1999 to 5.50% in 2003. A 2009 term was priced to yield 5.80%; a 2012 term yielded 5.90%; a 2014 term yielded 5.75%; a 2020 term was priced to yield 5.80%; and a 2021 term was priced to yield 6%. Bonds in 2016, 2019, and 2022 were not formally reoffered to investors.
The issue is rated Baa1 by Moody's and A-minus by Standard & Poor's, except for insured bonds. Bonds in 2014, 2019, and 2020 were insured Financial Security Assurance Inc. and are triple-A rated.
Goldman, Sachs & Co. as senior manager surprised the market by pricing $186 million Dallas, Tex., general obligation refunding bonds.
The bonds were said to be priced 10 basis points off last week's triple-A Virginia deal. The offering was made up of serial bonds only, priced to yield from 2.40% in 1994 to 5.45% in 2011.
The managers said they expected the issue to be rated Aa1 by Moody's and AAA by Standard & Poor's.
Secondary Markets
Traders reported a steady flow of bid-wanteds from the range of market players.
Traders reported a good bid for many bonds and The Blue List of secondary dealer inventory fell $54 million, to $1.66 billion, reflecting going away business.
The market opened up with some firmer New York blocks changing hands, traders said. A block of Southern California Public Power Authority bonds was said to get a firm bid, waking up the California market.
Insured California paper has recently been cheap, traders said, attracting some attention. A $6 million block of SACMUD MBIA 5 3/4s of 2013, traded and were reoffered at a 5.63% net.
Traders reported three or four bid-wanted lists. Traders also cited an intermediate retail list.
Other sizable blocks of bonds out for the bid included $25 million North Carolina Eastern 5 1/2s of 2021, which did not trade, $10 million Alabama PUB 5s of 2005, $11 million Hawaii 5 1/8s of 2006, and from brokers, $7.3 million Texas Municipal Power MBIA 5 1/2s of 2010.
In secondary dollar bond trading, prices were quoted up 1/8 to as much as 1/2 point, traders said.
In late action, Philadelphia Municipal Authority FGIC 5 5/8s of 2014 were quoted at 5.72% bid, 5.70% offered; New York City 5 3/4s of 2014 were quoted at 6.15% bid, 6.10% offered; and Orange and Orlando FGIC 5 1/2s of 2018 were quoted at 5.65%-lock.
Boston 5 3/4s of 2023 were quoted at 98 3/8-1/2 to yield 5.86%; Washington Public Power Supply System MBIA 5.70s of 2017 were quoted at 98 1/4-1/2 to yield 5.83%; and Chicago GO FGIC 5 5/8s of 2023 were quoted at 97 1/4-1/2 to yield 5.82%.
In the short-term note market, yields were mixed on the day, traders said.
In late trading, New York State Trans were quoted at 2.22% bid, 2.15% offered; Texas Trans were quoted at 2.12% bid, 2.05% offered; and Wisconsin notes were quoted at 2.62% bid, 2.50% offered.
