Municipal bond prices ended flat to a quarter-point lower yesterday in quiet trading.
Orange County, Calif., meanwhile, auctioned off $483 million of agency debt from its troubled investment pool. The remainder of the county's $1 billion portfolio of conventional securities will be auctioned today. Salomon Brothers is running the auction.
Overall yesterday, the municipal market appeared to be downshifting a bit ahead of the holidays.
"It's been a long year, and any excuse to not do anything sometimes finds a home," a trader said.
In light activity yesterday, dollar bonds were down 1/8 to 1/4 point, while yields on high-grade issues rose by two basis points. An analyst said the market had been largely unchanged until late afternoon. Yesterday's weakness, however, was "on nothing real", he said. In debt futures yesterday, the March municipal contract was down 13/32 to 84 15/32. Yesterday's March MOB spread was negative 476, compared to negative 463 on Wednesday.
A second trader said that while the market was winding down ahead of the holidays, it seemed to be regaining some stability.
"There's still not a lot of people drawing a line in the sand and saying this is it, but I mean we've reached some stability here", he said.
The trader said that losses suffered by Orange County slowed retail down a bit, but the market appeared to be recovering.
"We're kind of getting back to pre-Orange County levels," he added.
Buyers who bought before the Orange County news broke and held on to their bonds can probably get out now at cost, "but at the same time, it would probably make them a little bit more timid," he said.
The trader said that while firms traditionally have tended to horde bonds at this time of the year, he doesn't see that happening this time around.
"There's traditionally very little new issue supply in January, a lot of calls, and a lot of coupon payments, so people have been pretty proud to carry inventory over year end," the trader said, adding that his firm carried "an ungodly" amount over last year, when municipals were enjoying a bull market and big redemptions were expected.
While last year's refrain was "if you own it they will come," this year's is "let them come and then we'll own it."
Every time players bought bonds this year thinking the market would do better they lost money, the trader said. The last time people got burned was when the market was looking good just before the Orange County news broke.
"No one wants to be a hero here at year end," the trader said.
As for reports of additional layoffs in the muni industry, the trader said he suspects firms that rely heavily on institutional customers such as mutual funds will hit harder than big retail firms.
"I really think that retail is still a very viable game in muni land," he said. "Institutional [forces] think about who they are covering, the mutual funds. Mutual funds have been bleeding now basically for half the year."
As for Orange County, the trader said the auction adds a little bit more certainty to the situation.
"I think what they are doing is positive in the sense that they take their hit, they get out," the trader said. "Basically, what it does is cap their losses."
Salomon, the financial adviser to Orange County, yesterday said that it received bids totaling more than $7.5 billion for the $483 million of fixed-rate, non-structured securities. A Salomon spokeswoman was unable to state the amount of proceeds from the sale.
In other news yesterday, the Port Authority of New York and New Jersey announced plans to accelerate retirement of certain bonds after a break-off in lease negotiations regarding La-Guardia Airport and John F. Kennedy International Airport.
The Port Authority leases JFK and LaGuardia from New York City, and the lease is up in 2015, according to Barry Weintrob, the authority's chief financial officer. Talks were suspended around mid- November, he said.
"I think that's a good move by them," Thomas, G. Moles, a managing director at J&W Seligman, said yesterday. It's typical smart management on their part - I've always been impressed by the way they operate."
The move was one of two actions the Port Authority's staff recommended "to protect bondholders that hold debt with maturities beyond the expiration of the airport lease in 2015," a statement from Weintrob's office said.
The authority plans to speed the retirement of its bonds so that the roughly $1.8 billion of itsbonds with maturities beyond 2015 will have been retired by the year 2015, Weintrob said.
To meet that goal, about $40 million of early retirements will be needed in 1994, the release said, with larger amounts of retirements needed in subsequent years. The authority said the program has already begun, and $25 million of bonds have been purchased and will be retired.
In the next few weeks and into early 1995, the authority plans to retire another $15 million to $20 million of the bonds, Weintrob said.
"This action is a good faith effort by the authority to mininiize any uncertainty regarding those bonds which are secured in part by airport revenues, given the leasehold for the airports expires prior to the maturity of the bonds," the statement said.
The second part of the authority's plan, beginning next year, is to limit the maturity of its bonds subject to the alternative minimum tax to 20 years instead of the 35 years now.
"This shorter life should diminish bondholders'security concerns and enable us to continue to make significant improvements at Kennedy and La-Guardia Airports, totaling at least $2 billion, over the remaining term of the lease," the statement said.
The Port Authority said it plans to review both actions again next year as well as in later years to see if they continue to satisfy bondholders' credit concerns.
"Of course, if subsequent discussions with the city result in a longer lease for the airports, we will revisit this entire matter," the statement said.
The 30-day supply of municipal bonds yesterday totaled $2.40 billion, down $613 million from Wednesday. That comprises $570.3 millon of competitive bonds, down $240 million from Wednesday, and $1.83 billion of negotiated bonds, down $373 million.
Standard & Poor's Corp.'s Blue List of municipal bonds was up $17.4 million yesterday, to $1.55 billion.