Municipals climbed 1/4 to 3/8 yesterday as the city and county of Denver priced $257 million of airport system revenue bonds.
"It's quiet but there's son of a firm underlying tone," one trader said.
Dollar bond prices rose 1/4 point, while yields on high-grade issues improved by three basis points. Activity was moderate, having picked up during the afternoon.
In debt futures, the September municipal contract closed up nearly 1/2 point at 91 7/32s. Yesterday's September MOB spread was negative 392, compared with negative 390 on Monday. The 30-year Treasury bond closed slightly more than 3/8 higher to yield 7.45%.
A second trader said that Treasury market stability and thin supply contributed to yesterday's higher municipal levels. The first trader also cited customer selling, with some 25 lists totaling $200 million to $250 million out for the bid.
"Again we were deluged with bid lists for the better part of the day," he said.
Turning to new issues, the Denver Airport deal, priced through a Lehman Brothers group, was reported all sold yesterday.
"It went very well, so we increased the size slightly and lowered the yield," a source familiar with the Denver deal said. "It's going to be in excellent shape."
The offering contained serial bonds, priced to yield from 6.35% in 1996 to 7.55% in 2006. A 2017 term, Containing $75 million, was priced to yield 8.05%. A 2023 term, containing $99.9 million, was priced to yield 7.80%.
At the repricing and restructuring, yields on all maturities were lowered by five basis points. A 2000 maturity was also deleted for structural reasons, and the offering's size was increased to $257 million from $232 million.
The 2017 term yields more than the 2023 term, because the 2017 maturity is callable after three years. The 2023 term can't be called for 10 years.
The shorter call protection on the 2017 term gives Denver the flexibility of calling those bonds earlier if the airport's bonds begin trading much better after it opens, the source said. Most of the demand came from bond funds, the source said.
Joe Deane, a managing director and portfolio manager of the Smith Barney Shearson Managed Municipals Fund, was among the buyers.
"We were a small participant," said Deane, who before yesterday's offering had about $90 million of Denver Airport paper spread among several funds.
Deane was not surprised that the offering was repriced at lower yield levels from the preliminary pricing. In general, the portfolio manager said, people have become "a little bit less negative" about Denver Airport paper over the last few weeks. Among the positive news that has come out about the credit are the backup baggage system, agreed upon by United Airlines and the city, and the reaffirmation of the conditional Baa rating by Moody's Investors Service.
Ernest Perez, a director in Standard & Poor's Transportation Ratings group, said that getting the airport open would be just "the first hurdle." The kinks need to be worked out of the baggage system, and the airport would have to demonstrate how close its operating and maintenance expense projections are to reality, Perez said.
Once the airport has been open for a year, Standard & Poor's may take another look at the rating given the underlying credit strength, the analyst said.
"It's just the strength of the airport, the need for this facility in the nation's transportation system," Perez said.
Also yesterday, a Morgan Stanley & Co. group priced and repriced $196 million of New York State Thruway Authority local highway and bridge service contract bonds.
"We abstained," said Richard J. Moynihan, director of municipal portfolio management at the Dreyfus Corp. "It came insured, and as a result the yields were less than we like."
The offering contained serial bonds priced to yield from 4% in 1995 to 6.20% in 2010. A 2013 term was priced to yield 6.09% and a 2014 term was priced to yield 6.324%.
At the repricing and restructuring, the status on the 2008 maturity was changed to uninsured. A 2010 serial maturity was added, and yields on both term bonds were lowered by about six basis points. MBIA insured the bonds from 2001 to 2006, in 2009, and in 2013. The remaining bonds have a Baal rating from Moody's and a BBB rating from Standard & Poor's.
Also yesterday, Chelsea, Mass., issued $111 million of general obligation bonds, the city's first GO issue since 1982. Lehman Brothers was senior manager on the offering.
The offering carried a top yield of 6.15% in 2014. At the repricing, yields on most serial bonds were lowered by five basis points. Yields on the 2012 and 2014 terms were cut between two and four basis points.
In other news yesterday, the 30-day visible supply of municipal bonds totaled $2.425 billion, up $35.8 million from Monday. That comprised $1.36 billion of competitive bonds, up $23.4 million from yesterday, and $1.07 billion of negotiated bonds, up $12.5 million from yesterday.
Visible supply has been under $3 billion for six days, and eight of the last 10 days. It has been under $5 billion for 30 consecutive days, and 106 times so far this year. Visible supply was under $5 billion 78 times in 1993, and 133 times in 1992.
