Municipal bonds ended a quiet session yesterday firm to 1/4 point higher as the market seemed to pause ahead of the week's upcoming slate of new issues.
"Boredom," one underwriting official responded when asked to characterize the market's overall mood.
Tax-exempts mimicked the malaise afflicting Treasuries, where the long bond was drifting about 3/4 point higher to yield 7.50% late in the session.
Seeking a directional barometer, fixed-income market participants are awaiting Alan Greenspan's Humphrey-Hawkins testimony on Wednesday and fresh economic reports, analysts said.
SOme, however, are discounting the Federal Reserve chairman's appearance before Congress.
"Since he spoke last week, I don't think anyone feels they're going to hear anything different from him in the next few days," one trader said.
In debt futures, the September municipal contract settled 11/32 higher at 90 26/32s.
Among actively traded dollar bonds, Florida Board of Education 5.80s of 2024 were quoted at 6.27% bid, 6.24% offered, and MEAG 6s of 2022 were quoted at a price of 96 7/8 bid, and 97 1/8 offered.
Dealer inventories continued their downward trend yesterday, as Standard & Poor's Corp.'s Blue List edged $8 million lower to $1.472 billion from $1.48 billion on Friday. Since July 1, when the measure of dealer inventory was $2.02 billion, it has fallen by $550 million.
The Bond Buyer's 30-day visible supply slipped $126.3 million yesterday to $8.52 billion from $9.07 billion. After spending 38 consecutive days under $5 billion (May 13 - July 8) the measure of future supply has not been under $7 billion for the past six business days. The competitive component swelled to $6.03 billion, driven by the $4 billion in California revenue anticipation warrants, scheduled for sale tomorrow.
In limited new issue activity yesterday, Merrill Lynch & Co. placed the winning bid for an offering for $43 million Shelby County, Tenn., unlimited tax general obligation school bonds, Series B. The firm also won $7 million Shelby County public improvement GOs, Series A.
Merrill won by bidding a true interest cost of 6.009% on the school bonds and 6.007% on the public improvement bonds.
All of the securities are rated Aa by Moody's Investors Service Inc. and AA-plus by Standard & Poor's Corp. All were reoffered to investors at yields ranging from 4.25% in 1996 to a top yield of 6.15% in 2020.
An unsold balance of about $25 million remained on the entire issue late yesterday, a Merrill official said.
Looking ahead on the negotiated calendar, the Port Authority of New York and New Jersey will offer $100 million consolidated bonds, ninety fifth series, today. The offering consists of serial bonds with maturities ranging from 2005 to 2014 and term bonds due in 2019 and 2029.
Merrill Lynch is the book-running manager. Co-managers on the offering are comprised of a number of small, regional, and women- and minority-owned firms. The deal marks the fifth annual offering by the authority, which emphasizes the inclusion of such firms.
Two firms, New York-based Asensio & Co. Inc. and George K. Baum & Co., make their first appearance as co-managers on a Port Authority offering, said Bruce D. Bohlen, the authority's assistant treasurer.
Asensio & Co., which is approximately 80% Cuban-owned, was incorporated in early 1993 and focuses on fixed income and equity sales and trading, equity research and financial advisory work, said Manuel P. Asensio, president, chairman and chief executive officer.
Two deals are expected to capture the market's attention tomorrow.
California is slated to sell $4 billion of revenue anticipation warrants, and New York City will offer $750 million of general obligation bonds.
The Golden State's competitive offering of warrants will mature in 1996. This will make the warrants ineligible for purchase by tax-exempt money market funds, unless it is repackaged into derivatives, fund managers said. Money market funds cannot purchase bonds with a maturity of more than 13 months.
However, the high yields expected on the deal could make it attractive for crossover buyers, and short to intermediate municipal funds as well as some long-term California funds, said Joel Silva, an associate portfolio manager with the Benham Group.
A portion of the offering is expected to carry credit enhancement in the form of a standby warrant purchase agreement. It is offered by a consortium of 14 banks led by Bank of America, Morgan Guaranty and Sumitomo. A dutch auction will determine a single yield at which the enhanced bonds will be reoffered.
In addition, dealers have talked of restructuring about $1 billion of any enhanced bonds into derivatives, Silva added.
Price talk puts the yield on the enhanced bonds in the 5.00% range and at 5.30% on the unenhanced securities, Silva said. The 5.00% yield is comparable to that on a Triple-A rated, insured bond maturing in 1999 and 2000, Silva said.
"The most the spread could be is 40 basis points because that's the cost of the letter of credit backing," Silva said.
The unenhanced warrants are rated MIG-3 by Moody's.
Meanwhile, market participants believe that the spread between the enhanced and the unenhanced securities should be more like 60 to 100 basis points, he said. That's why Silva says the entire issue could very likely be sold with credit enhancement.
Silva said Benham is considering purchasing the bonds for its $120 million short/intermediate funds. The bonds also could be used as part of a barbell strategy for Benham's long-term California fund, he added.
The New York City offering is expected to consist of serials maturing from 1994 to 2010. Prudential Secuties is lead underwriter on the offering.
Preliminary price talk put the top yield on the New York City offering in the 6.40% range, several dealers said. The bonds are not expected to carry insurance. Limited supply and high retail demand for New York paper could mean the city will have to offer little yield concession to sell its bonds, underwriters said.
