Municipal investors were faced with a widely varied menu of new deals yesterday, and for the second straight day they chose carefully and consumed almost $1 billion in new issues.
Although there were more large deals priced on Tuesday, the tax-exempt market absorbed an array of medium-sized deals yesterday, highlighted by a $310 million issue marking Puerto Rico's return to competitive sale.
Overall, municipal prices were slightly higher yesterday. But the axiom, "but the rumor, sell the fact" came into play late in the afternoon.
"The market had traded up yesterday morning because of the gains made in the Treasury market," said a head of a trading desk. "However, when they fell they brought us down with them."
The morning 1/2-point rise in prices was partially attributable to the Federal Reserve's so-called beige book, which stated that the economic recovery has been uneven in recent weeks. But the driving force to the uptick was the rumor that the Treasury would lower the amount of 30-year bonds sold at next week's summer borrowing.
By the end of the session, most sectors of the market had given back most of their early gains. Municipal prices wound up the day at 1/8 higher.
Supply, which has been a friend to prices throughout most of the summer, continued to enhance the tone of the market yesterday. "There's still a lot of money out there looking to invest in municipal debt," said a trader. "Investors who can keep their portfolios full of newly issued paper are in a good position."
The trader said the market had skyrocketed out of sight after last month's report on employment and that these last few sessions have been a correction from that rise. "There's a lot of people out there who have been hit very hard by this past week's action," he said. "One of my accounts has dropped 27 basis points since last Wednesday."
Visible supply for the next 30 days, as reported by The Bond Buyer, stood at $5.2 billion yesterday. Standard & Poor's Corp.'s Blue List was $1.3 billion.
The largest benefactor to the morning price rise was the September municipal futures contract. At one point the contract was quoted up 18/32. But by the end of trading, the contract settled down 5/32 to 98.31.
Puerto Rico GOs
Yesterday's largest deal was the auction of $310 million Puerto Rico GO bonds. The offering marks the first time since 1974 that the commonwealth has sold long-term debt in this fashion.
The winner of the bonds was a syndicate led by Morgan Stanley & Co., with a true interest cost of 5.9703%. The offering contains serial bonds priced to yield from 4% in 1995 to 5.95% in 2011. There are also three term bonds.
The first term matures in 2015, contains $53 million of the loan, and is priced as 5.85s. This term was not formally reoffered to investors. The second term matures in 2018, contains $49 million, and is priced as 5 7/8s to yield 6.028%. The third term matures in 2022, totals $80 million, and is priced as 6s to yield 6.05%.
The 1997-2000, 2002, 2004-2007, and 2015 maturities are AMBAC-insured and rated triple-A by Moody's and Standard & Poor's. The remainder of the loan is rated Baal by Moody's and A by Standard % Poor's.
Late in the session, Morgan Stanley reported a $22 million unsold balance on the offering, and said the demand for Puerto Rico's bonds remains strong.
According to Jose M. Berrocal, president of the Government Development Bank of Puerto Rico, the cover bid was provided by Lehman Brothers with a true interest cost of 5.9749%.
"We had a great day," Mr. Berrocal said. "For the first time ever the Commonwealth was able to do a deal under 6%.
Mr. Berrocal said the performance of yesterday's deal has "greatly enhanced" Puerto Rico's decision to refinance "a good portion" of their existing outstanding debt. The announcement on when these refinancings will take place would be made within the next few weeks, he noted, adding that "the market is just too attractive to let this opportunity slip away."
Leading the charge in the negotiated sector was the pricing of $147 million Delaware Transportation Authority transportation system revenue bonds, priced by a group led by Dillon, Read & Co.
The deal is split into two sections. The first consists of $90 million senior revenue bonds, series 1992. The series are priced to yield from 2.75% in 1993 to 5.90% in 2008. There is also a term bond maturing in 2012 priced as 5 3/4s to yield 6%.
The senior revenue bonds are uninsured and rated A1 by Moody's and AA-minus by Standards & Poor's.
The second portion of the loan is comprised of $56 million junior revenue bonds, series 1992. This section contains serial bonds priced to yield from 2.70% in 1993 to 5.90% in 2009.
This portion of the deal is MBIA-insured and AAA rated.
A group led by Merrill Lynch & Co. priced an issue of $107 million City of Detroit distributable state aid GOs, 1992 fiscal stabilization series.
The offering contained serial bonds priced at par to yield from 4.625% in 1994 to 5.625% in 1997 and has been rated Baa by Moody's and BBB-plus by Standard & Poor's.
A group led by Lazard Freres & Co. priced an issue of $130 million City of Chicago, Chicago-O'Hare International Airport general revenue bonds, 1992 series.
The offering contains serials priced to yield from 4.40% in 1995 to 6.15% in 2007. There are also two terms bonds. The first term matures in 2012 and is priced as 6s to yield approximately 6.338%. The second term matures in 2018 and is priced as 6s yield approximately 6.39%.
The issue is rated A1 by Moody's and A-plus by Standard & Poor's Corp.
Donaldson, Lufkin & Jenrette Securities Corp. priced an issue of $70 million New Jersey Housing and Mortgage Finance Agency, home buyer revenue bonds, 1990 series F-2.
All the bonds mature in 2025 and are priced at par to yield 6.30% and are subject to the alternative minimum tax.
An issue of $54 million North Dakota Health and Educational Facilities Authority revenue bonds, series 1992 were priced by Piper, Jaffray. The offering contains serials priced to yield from 2.90% in 1993 to 5.80% in 2004.
There are three term bonds included in the offering. The first term matures in 2008 and is priced as 6s to yield approximately 6.074%. The second term matures in 2012 and is priced as 6.05s to yield approximately 6.13%. The third term matures in 2022 and is priced as 6.15s to yield 6.215%.
Back in the competitive sector, a syndicate led by Morgan Stanley won an issue of $75 million Louisville Board of Water Works, Kentucky, water system revenue bonds, with a TIC of 5.740%.
The offering contains serial bonds priced to yield from 4% in 1995 to 5.90% in 2010. There were two terms. The first matures in 2013, contains $16 million of the loan, and was priced as 5 3/4 to yield 5.95%. The second term matures in 2014 and is priced at par to yield 6%.
Late in the session, a member of the underwriting desk at Morgan Stanley reported a $30 million unsold balance on the issue.
In secondary dollar bond trading, Berks County, Pa., 5 3/4s of 2012 were quoted at 97 1/8-3/4 to yield 5.99%; Jacksonville Electric Authority 5 1/2s of 2014 were quoted at 93 5/8-7/8 to yield 6.02%; Los Angeles Department of Water and Power 6s of 2030 were quoted at 98-1/8 to yield 6.13%; Puerto Rico Electric Power Authority 6s of 2010 were quoted at 98 5/8-7/8 to yield 6.12%; New Jersey Turnpike Authority 6 1/2s of 2016 were quoted at 106 1/2-107 to yield 6.00%; and Port authority of New York and New Jersey 5 5/8s of 2014 were quoted at 95 3/4-96 to yield 6.02%.
In short-term action, traders reported a slow day.
In late trading, Iowa Trans 3 1/2s were quoted at 2.95% bid, 2.90% offered; Los Angeles Trans 3 3/4s were quoted at 2.82% bid, 2.80% offered; and New York City Tans 3 1/4s were quoted at 2.60% bid, 2.65% offered. Wisconsin Trans 3 3/4s were quoted at 2.83% bid, 2.80% offered, while New York State Trans 3.65s were quoted at 2.90% bid, 2.85% offered.