Municipal bond prices ended unchanged to slightly higher yesterday in a session that passed without another round of credit tightening by the Federal Reserve.
"It's just real quiet," a municipal trader said. "There were a decent number of bid lists circulating, and the market hasn't moved much either way," he ket hasn't moved much either way," he added.
The trader estimated that the lists, which came mainly from mutual funds, totaled $150 million to $250 million. "For a day like today, that's a lot," the trader said, referring to the Christmas holiday slowdown.
While some of yesterday's bid list activity appeared to be tax swapping, "I wouldn't be surprised if there were still some redemptions, you know, fallout from Orange County," the trader said.
In light secondary activity, yields on high-grade issues ended unchanged. Dollar bond prices were unchanged to up 1/8 point. In debt futures, the March municipal contract ended unchanged to settle at 84 22/32. Yesterday's March MOB spread was negative 474, compared to negative 480 on Monday. In the government market, the 30-year bond ended down 1/8 point to yield 7.84%.
In new issue developments yesterday, Florida Comptroller Gerald Lewis killed a controversial $60 million certificate of participation deal that had been planned this week for the state's equipment lease program.
A syndicate led by Bear, Stearns & Co., with PaineWebber Inc. acting as co-senior manager, had planned to price the issue yesterday. Lazard Freres & Co. had been the financial adviser on the transaction.
"During the past several days, this office has been the subject of unfounded and erroneous accusations by persons whose motives are unclear regarding the proposed Consolidated Equipment Financing Program," Lewis wrote Gov. Lawton Chiles. "As a result, public confidence in the proposed financing and program's success has been jeopardized.
"Accordingly, I have decided to terminate this program," Lewis said. "Notice is being provided to the participants in the program."
In his letter, Lewis asked the governor and cabinet to review the transaction "to avoid these kinds of problems in the future."
Under the COP program, which has been in place since 1986, the state has put into place a new series of financings every three years.
According to investment bankers, the deal had raised the ire of many regionally-based and minority-owned investment bankers who felt they had been unfairly excluded by the qualifications specified in the comptroller's selection process.
The RFP sent out by Lewis in September had specified that investment firms would not be considered for a management slot in the deal unless they had served as senior managers in at least five Florida tax-exempt issues in the past five years, and led transactions totaling $100 million.
In a statement, the comptroller's department denied that it had rigged bids on the deal. "A substantial number of companies bid for the job, were rigorously evaluated by professional staff, and given a numberical rating based on their expertise and experience," the statement read. "The highest-rated company was chosen as the prime contractor."
In addition to selling about $60 million in COPs to fund new equipment, the comptroller had considered moving forward with a $43 million refinancing for the program over a threeyear period.
Returning to yesterday's Fed watch, Eugene J. Sherman, director of research at M.A. Schapiro & Co., said the Fed likely left policy unchanged following yesterday's Federal Open Market Committee meeting in part because only five weeks had elapsed since its sharp 75-basis-point move last month. Fed officials probably want more time to assess the impact of that tightening as well as some earlier ones, Sherman said.
In addition, "the headline figures on inflation, especially at the consumer level, have been very, very mild for many months, not just the most recent [month]," Shapiro said.
"At the consumer level, we are just not seeing price pressures work their way through," he said. Schapiro said, though, that he would give "a high probability to a tightening on Feb. 1." He expects a half-point increase in both the federal funds rate and the discount rate.
Robert W. Chamberlin, a senior vice president and supervisory municipal analyst at Dean Witter Reynolds Inc., said, "It has not been a very good year" for municipals, adding that he expects 1995 to be more orderly.
"If there was one thing 1994 was not it was orderly," Chamberlin said.
Going forward, Chamberlin sees a mix of positives and negatives.
"What we've really got here is a stand-off on all these things, any of which could turn out to be epic," he said. Among the negatives Chamberlin sees are the proposed middle-in-come tax cuts, and the restructuring of the federal government's housing programs.
Middle-class tax cuts without accompanying cuts in spending would widen the deficit, which would be bad news for bonds, he said. And any cutbacks in the government's housing programs would be bad for municipal bonds in particular, Chamberlin added.
The market also must continue to grapple with the Orange County debacle, the analyst said.
"On balance, people think that, hey, all we've got here is a bad situation that is being hashed out as best it can be done," he said.
On the positive side, the analyst pointed to a plan by incoming House Banking Committee chairman Jim Leach, R-Iowa, to repeal the Tower amendment. A repeal would allow regulators to subject municipal issuers to the same disclosure requirements as corporate issuers.
"That's great. I mean that's a big plus," Chamberlin said, adding that it will provide a "big push" for the market's credibility.
Another positive is the good technical shape the market finds itself in heading into 1995.
"We know that we've got in excess of $25 billion worth of retirements on the first of January, and we know that volume is probably going to be low as it normally is in January," he said.
Chamberlin said he sees no economic data due out this week or next that the market is likely to trip over, and added that even if the market received some troubling news, judging from recent performance it could very well ignore it.
Chamberlin thinks municipals may outperform governments in the short run because of the shortage of new municipal paper. But for now, "given the relatively limited amount of activity that you are going to be seeing, it's a tough time to draw any real lasting conclusions."
The 30-day visible supply of municipal bonds yesterday totaled $1.34 billion, down $39 million from Monday. The total marks a low for the year.
It comprises $483.4 million of competitive bonds, down $33.4 million from Monday, and $859.3 million of negotiated bonds, down $5.6 million. The competitive total is also a 1994 low.
Standard & Poor's Corp.'s Blue List of Municipal bonds was up $107.0 million yesterday to $1.824 billion.