Players said aggressive bidding for competitive deals ushered bond prices higher yesterday, but results of the sales were unclear, rendering the gains suspect.
In a busy day, over $1.9 billion of offerings were brought to market. Underwriters set low yields for several high-grade competitive deals, including $800 million California bonds.
Traders said the strong pricings helped the tax-exempt market play catch-up to Treasuries, which have handily outperformed municipals during recent weeks.
Secondary market players reported better bids right out of the gate as a result.
For example, a trader said $7.5 million New York UDC AMBAC 5 1/4s of 2018 traded at 991/2 to yield 5.28%. They were quoted late Monday at 99-1/4 to yield 5.32%.
Traders reported brisk activity throughout the day, centered mostly around blocks of bonds, rather than bid-wanted lists. Many traders said they suspected that crossover buyers, eager to buy comparatively cheap bonds on the upswing, played a key role in the up-trade.
Near session's end, prices were quoted up 3/8 to 1/2 point. But profit takers were said to be knocking bonds down by session's end. Prices were quoted up 3/8 on average and 1/2 point in spots.
For example, Florida State Board of Education 5 1/4s of 2023 were quoted at 99 1/2-100 to yield 5.28% about a half-hour after the futures market closed, but were quoted at 99 1/4-1/2 to yield 5.30% about one hour later.
In other secondary dollar bond trading, prices were quoted up anywhere from 1/4 to 3/4.
In late action, New York State Dormitory Authority City University 5 1/2s of 2012 were quoted at 5.58% bid, 5.57% offered; South PUB 5 1/8s of 2032 were at 5.41% bid, 5.40% offered; and South Carolina PSA FGIC 5s of 2025 were 5.30% bid, 5.27% offered.
In the debt futures market, the December municipal contract settled Up 8/32 to 105.00. The contract achieved a high. of 105.05, but came off with Treasuries late in the day after the Johnson Redbook showed a 2.3% gain in retail sales. The MOB spread was unchanged on the day at negative 480. The better business flow put a halt to increasing secondary supply, which has been on the rise as the market backed off from its highs. The Blue List of secondary dealer inventory for sale fell $79 million yesterday, to $1.73 billion.
Traders said they saw legitimate selling to permanent investors, but were wary about the actual demand for the deals.
"They priced these deals high and what really happened is anybody's guess," said one trader. "Some of these guys will sit on bonds till they hatch."
"The whole rally was done by the Street," said a more skeptical trader. "There's not much going away business and we've seen some profit taking near the end of the day.
New Competitive Deals
Market sources said the competitive deals were as much as 10 basis points more aggressive than the rest of the market. They said that bonds priced over buyers' heads were probably five basis points away from the reach of investors.
A Merrill Lynch & Co. group won 800 million California general obligation various purpose bonds with a true interest cost of 4.83%. Merrill reported an unsold balance of about $396 million late in the day.
Goldman, Sachs & Co. had the only other bid. with a TIC of 4.9045%.
Serial bonds were reoffered at yields ranging from 2.50% in 1994 to 5% in 2013. A 2018 term, containing $84 million of the loan, was priced with a coupon of 4.75% to yield 5.15%. A 2023 term, also containing $84 million, was priced as 4 3/4s to yield 5.24%.
The uninsured portion of the issue is rated double-A by Moody's Investors Service and Fitch Investors Service, and A-plus by Standard & Poor's Corp. Financial Security Assurance Inc. backed the term bonds, which are rated triple-A by Moody's and Standard & Poor's.
Elsewhere, a Merrill group also won $317 million non-callable Mecklenburg, N.C., unlimited tax general obligation refunding bonds with a TIC of 4.429%. Merrill estimated an unsold balance of about $30 million late in the session.
First Boston Corp. had the cover bid with a TIC of 4.4569%.
Serial bonds were reoffered to investors at yields ranging from 2.45% in 1994 to 4.55% in 2006. Bonds from 2007 through 2012 were not formally reoffered..
The Mecklenburg issue is rated triple-A by Moody's and Standard & Poor's.
Finally, Goldman won $300 million Washington various purpose full faith and credit general obligation bonds with a TIC of 4.9511%. Goldman reported an unsold balance of $95.5 million late in the day.
Bear, Stearns & Co. had the cover bid with a TIC of 4.9983%.
Serial bonds were reoffered to investors at yields ranging from 2.50% in 1994 to 5.10% in 2013. Bonds from 2002 through 2010 were not reoffered. A 2015 term bond, containing $35 million, was priced as 4 7/8s to yield 4.96% and a 2018 term, containing $61 million, was priced as 4 1/2s to yield 5.17%.
The issue is rated double-A by Moody's, Standard & Poor's, and Fitch.
New Negotiated Deals
Bear Stearns priced and repriced $251 million Kentucky Housing Corp. housing revenue bonds, federally insured or guaranteed mortgage loans.
At the repricing, serial bond yields were lowered by 20 basis points in 1994, by 10 basis points in 1995, and by five basis points throughout the remainder of the scale.
The final scale included serial bonds priced at par to yield from 2.70% in 1994 to 5.15% in 2007. A 2010 term, containing $44 million, was priced at par to yield 5.30% and a 2014 term, containing $71 million, was priced at par to yield 5.40%.
The issue is rated triple-A by Moody's and Standard & Poor's.
PaineWebber Inc. as senior manager priced, repriced and restructured $190 million New York State Thruway Authority local highway and bridge service contract bonds.
At the repricing, serial bond yields were lowered by five basis points from 1996 through 2005. Term bond yields were lowered by about four basis points in 2007 and 2013, while a 2008 maturity was added to the scale.
The final scale included serial bonds priced to yield from 3% in 1994 to 5.35% in 2005. A 2007 term was priced as 5 1/8s to yield 5.43%; a 2008 term was priced as 5 1/8s to yield 5.45%; and a 2013 term, containing $68 million, was priced as 5 1/4s to yield 5.535%.
The bonds are rated Baal by Moody's and BBB by Standard & Poor's.
Market observers recently speculated that demand for the thruway issue could be tepid. The issue is currently included as part of a lawsuit filed against the state and the authority by taxpayer activist Robert L. Schulz.
Players close to the deal said late yesterday it was not hurt in a meaningful way by the lawsuit.
"We received one inquiry, that's all," said Daniel Cohen, a director at O'Brien Partners, the authority's financial adviser. "Basically, our pre-marketing was correct. There was no interest penalty because of the lawsuit."
LA MTA Upgraded
Standard & Poor's yesterday said it raised its ratings to AA-minus from A-plus on $1.34 billion of Los Angeles County Metropolitan Transportation Authority Proposition A senior lien sales tax revenue bonds.
Standard & Poor's also said it affirmed the AAA rating on the authority's insured parity debt.
Standard & Poor's cited issuer strengths including the quality of the pledged sales tax, the county's economic diversity, and an additional bonds test that insures high debt service coverage.
Offsetting concerns continue to include the effects of the recession on sales tax receipts, along with a large capital plan that will keep financing demands high.
