Investors gave a lukewarm reception to the $2 billion of new issues sold yesterday, while secondary prices plummeted.
The drop marked the second day of a painful correction for the Street amid heavy supply in an over-invested market.
A myriad of new issues have swamped the market during the past two weeks while at the same time buyers have backed off, leaving the Street bloated with bonds.
Dealers hung on for several sessions, but began to sell-off Tuesday and the downward momentum increased yesterday: The market opened with a heavy tone and prices immediately headed lower in the face of new deals.
Reflecting the heaviness of the Street, The Blue List of dealer inventory rose $84 million, to $1.95 billion, while 30-day visible supply remained at a sizable $8.47 billion.
Matters worsened when the Treasury market lost nearly 3/4 point. Treasuries had been the main support for municipals under the weight of so much supply.
Traders said the bid for bonds evaporated amidst steady bid-wanted flow.
"There are enough guys who are selling things at any price just to lighten up their load and re-establish the bid-side," said one trader. "It's been very painful and there doesn't seem to be an end in sight and we're hearing rumors about redemptions hitting the market."
By session's end, traders quoted the market down 1/2 to 3/4 point on average. High-grade bond yields were said to rise five basis points. Dollar bonds were quoted down 1/2 to 3/4 on average, but some bonds lost as much as 1 1/2 points, traders said.
In the debt futures market, the September municipal contract settled down 22/32 to 100.23. The MOB spread narrowed for the first time in five days as Treasury futures fell further than the municipal contract. The MOB narrowed to negative 456 from negative 461 Tuesday.
PICA Hits Market
Yesterday's new issues suffered along with the rest of the market, most severely on the long end of the curve, underwriters said,
Results were mixed, depending upon the deal, but the tone of the primary was as negative as in the broader market.
For example, a syndicate led by Pryor, McClendon, Counts & Co. as senior manager was forced to downsize and raise yields on an issue offered by the Pennsylvania Intergovernmental Cooperation Authority for the City of Philadelphia.
At the repricing, the size of the loan was reduced from $800 million set at the preliminary pricing to $646 million. Term bond yields were raised by seven basis points, while serial bond prices were cheapened to raise yields five basis points from 2004 through 2009.
PICA sold a $475 million issue in June 1992 for the city.
Yesterday's issue would have included a refinancing of a portion of the 1992 bonds. But the down market prevented the refinancing of old debt. Howard H. Mackey 3d. senior vice president of sales and trading at Pryor, said.
The final offering included insured serial bonds priced to yield from 3.40% in 1995 to 5.60% in 2009. A 2015 term, containing $70 million of the loan, was priced with a coupon of 5.60% to yield 5.77% and a 2023 term, containing $170 million, was priced as 5 5/8s to yield 5.82%. There also was $94 million uninsured bonds priced with a coupon of 5.75% to yield 5.95% in 2015.
The serial bonds were insured by the Financial Guaranty Insurance Co. while the term bonds were insured by the Municipal Bond Investors Assurance Corp. The issue is rated triple-A by Moody's and Standard & Poor's. The FGIC bonds are rated triple-A by Fitch Investors Service.
After Philadelphia found itself cut out of the credit markets in 1991 because of its near insolvency and junk bond ratings, the state legislature established the Pennsylvania Intergovernmental Cooperation Authority to oversee city finances.
PICA was empowered to sell deficit bonds and borrow on behalf of the city for capital projects, until fiscal reform measures had a chance to convince investors to buy Philadelphia paper again.
Although Philadelphia's credit is linked to PICA, security for the authority's bonds is separate. Its investment-grade ratings are dependent on a pledge of the city's wage tax, which is insulated from both city and state interference.
New Deals
Elsewhere in the primary market, Bear, Stearns & Co. as senior manager priced and repriced $473 million New York State Medical Care Facilities Finance Agency FHA-insured mortgage revenue bonds for the St. Lukes-Roosevelt Hospital Center.
Serial bond yields were lowered by five basis points, while 2018 term bond yields were raised by two basis points and 2029 term bond yields were raised by four basis points.
The bonds were priced about 25 basis points cheaper than yesterday's generic insured scale.
A Bear Steams underwriter said the repricing reflected the weakness tn the long end of the broader market.
The final scale included serial bonds priced to yield from 3.25% in 1995 to 4.95% in 2004. A 2013 term, containing $151 million of the loan, was priced as 5.60s to yield 5.65%, a 2018 term was priced as 5 5/8s to yield 5.70%; and a 2029 term, containing $178 million, was priced as 5 5/8s to yield 5.766%.
The managers said they expected the issue to be rated Aa by Moody's and AAA by Standard & Poor's.
In other action. Lehman Brothers priced and repriced $423 million Washington general obligation refunding bonds.
Yields were raised by two to five basis points throughout the majority of the loan.
The final scale included $323 million non-callable various purpose GOs and $100 million non-callable motor vehicle fuel tax GO refunding bonds priced to yield from 2.40% in 1993 to 4.90% in 2003.
The bonds are rated double-A by Moody's, Standard & Poor's, and Fitch.
Donaldson, Lufkin & Jenrette Securities Corp. priced and repriced $159 million Metropolitan Government of Nashville and Davidson County, Tenn., water and sewer revenue bonds.
The 2013 term yield was lowered by about two basis points at the repricing, but there were no other price changes.
The final offering included serial bonds priced to yield from 3.70% in 1996 to 5.45% in 2010. A 2013 term was priced as 5.20s to yield 5.53% and a 2016 term was priced as 5.10s to yield 5.625%.
The bonds am insured by FGIC and rated triple-A by Moody's, Standard & Poor's, and Fitch.
Goldman Sachs priced $120 million Matagorda County, Tex. Navigation District No. 1 pollution control revenue refunding bonds for the Central Power and Light Co. project.
The firm said it received the verbal award at the original price levels.
The offering was made up of a 2028 bullet maturity priced at par to yield 6%. The issue is rated A3 by Moody's and A-minus by Standard & Poor's.
Stifel, Nicolaus & Co. priced $100 million Oklahoma GOs. Serial bonds were tentatively priced to yield from 2.20% in 1994 to 5.25% in 2013.
The bonds are rated double-A by Moody's, Standard & Poor's, and Fitch.
In competitive new issue action, Chemical Securities won $100 million Port Authority of New York and New Jersey revenue consolidated bonds with a true interest cost of 5.388%.
The firm reported an unsold balance of $60 million late in the day.
Serial bonds were reoffered to investors at yields ranging from 3.50% in 1996 to 5.50% in 2018. A 2021 term maturity, containing $21 million, was priced as 5 1/4s to yield 5.533%.
The issue is rated A1 by Moody's and double-a-minus by Standard & Poor's, and Fitch.
Away from the long-term new issue market, dealers had better success with new offerings.
A 31-member group led by Lehman Brother priced and repriced $2 billion California revenue anticipation notes.
The fixed-rated reoffering yield was lowered by five basis points at the repricing.
The final pricing included $1.65 billion non-callable fixed-rate notes priced with a coupon of 3.50% to yield 2.90%, due June 28, 1994.
The remaining $350 million of the loan was priced as floating rate notes, due June 28, 1994.
The issue is rated MIG-1 by Moody's Investors Service, SP-1 by Standard & Poor's Corp., and F1-plus by Fitch Investors Service.
Secondary Market
Traders reported a harried session, with a steady flow of customer lists and broker bid-wanted.
In secondary dollar bond trading, prices were quoted down 1/4 to as much as 1 1/2 points, depending upon the name.
In late action, WPPSS MBIA 5.60s of 2015 were quoted at 5.85% bid, 5.78% offered; Cook County, Ill. MBIA 5 3/8s of 2018 were quoted 5.84% bid, 5.81% offered.
New York LGAC 5 1/2s of 2018 were quoted at 5.86% bid, 5.83% offered: Puerto Rico 5 1/2s of 2019 were quoted at 5.71%, less 7/8, less 5/8; and Salt River 5 1/4s of 2019 were quoted at 5.76% bid, 5.74% offered.
In secondary note trading, yields were unchanged to as much as eight basis points higher in spots, traders said.
In late action, Iowa notes were quoted at 2.95% bid, 2.90% offered and New York State notes were quoted at 2.45% bid, 2.40% offered.
