A promising move higher was spoiled by a late Treasury market price drop that frustrated traders who decried gridlock in the secondary market.
Strapped by supply, the municipal market recently has depended on the Treasury market for price direction.
Treasury prices climbed yesterday morning after signs of a weak economy emerged when indicators were released.
But the market later gave up ground as traders were unable to hold positions in the face of heavy selling.
"We're stuck right here, unable to move higher, but there's not a lot of pressure to push us lower either," a trader said late in the session.
"It looked good in the morning and then it just died, a major league frustration day," he said. "We're at the mercy of the government market."
Other traders noted that many market players are on the sidelines as the year draws to a close, many of them still stinging from the severe price correction the market suffered during August and September.
Municipal prices gained as much as 1/4 point by midday, but settled mostly unchanged by session's end as activity ground to a halt.
In the debt futures market, the December municipal contract settled unchanged at 95.18.
Despite short-term volatility, the weak economy continued to reflect a low interest rate environment yesterday.
The consumer price index rose 0.2% in September, following a 0.3% gain in August.
Excluding food and energy prices, the core rate advanced 0.2% in September, following identical gains during the four previous months.
The lower than expected inflation was undercut by initial state unemployment insurance claims, which fell 16,000, to a seasonally adjusted 383,000, in the week ended Oct. 3.
But the Philadelphia Federal Reserve Bank's business outlook survey showed conditions in the manufacturing sector have weakened this month, and the market moved higher.
The index for general business activity registered a negative reading this month, after seven consecutive months in positive territory.
Negotiated New Issues
New deals continued to hit the market at a steady pace and at levels cheaper than outstanding secondary bonds, traders said.
Dominating negotiated pricing action, Bear, Stearns & Co. priced and repriced $171 million Pennsylvania Housing Finance Agency rental housing refunding bonds.
At the repricing, yields were lowered by about five basis points from 1994 through 1998.
The final reoffering included serials priced to yield from 3.65% in 1994 to 6% in 2004. A 2008 term maturity was priced as 6 1/4s, to yield 6.54%.
The bonds are FNMA-backed and triple-A rated by Moody's and Standard & Poor's
Lehman Brothers priced and repriced $154 million health facilities revenue bonds for the Missouri Health and Educational Facilities Authority.
At the repricing, yields were raised by five basis points on Series A bonds from 1998 through 2004.
Series B yields were raised by five basis points from 1998 through 2007.
The final offering included $9.5 million Series A bonds priced at par to yield from 3% in 1993, to 5.95% in 2004.
A 2015 term was not formally reoffered to investors.
The remaining $145 million Series B bonds were priced to yield from 3.70% in 1994 to 6.20% in 2007. A 2012 term was priced as 6 1/4s, to yield 6.339%; and a 2022 term was priced as 6 1/4s, to yield 6.43%.
The bonds are insured by the Municipal Bond Investors Assurance Corp. and are rated triple-A by Moody's and Standard & Poor's.
Competitive New issues
Action was light in the competitive sector after Wednesday's massive California $1.3 billion offering.
An issue of $76 million Kansas Development Finance Authority refunding revenue bonds was won by a group including Smith Barney, Kidder Peabody & Co., Dean Witter Reynolds, A.G. Edwards & Sons, and Clayton Brown & Associates Inc.
The bonds were won with a net interest cost of 5.68740% and were reoffered to investors at yields ranging from 2.60% in 1993 to 6.25% in 2012.
An unsold balance of $33.7 million was reported late in the day.
The issue is MBIA-insured and rated triple-A by Moody's and Standard & Poor's.
In follow-through business in the competitive sector, Merrill Lynch & Co. reported an unsold balance of $150 million from $1.3 billion of California GOs the firm bought on Wednesday.
Secondary Markets
Traders reported some action during the morning when prices were as much as 1/4 point higher.
But activity seized up by mid-session and very little business was done, traders said.
In secondary dollar bond trading, prices were unchanged to 1/4 point weaker.
In late action, New York City Walter and Sewer 6 3/4 of 2022 were quoted at 96 1/8-3/8, to yield 6.676%; Los Angeles Department of Water and Power 6s of 2032 were quoted at 94 1/4-3/4, to yield 6.40%; and Washington Public Power Supply System 61/2s of 2015 were quoted at 98 5/8-3/4, to yield 6.617%.
Puerto Rico GO 6s of 2014 were quoted at 94 1/2-7/6, to yield 6.474%; Illinois Toll Highway Authority 63/8s of 2015 were quoted at 97 3/4-98 1/8, to yield 6.56%; and Florida Board of Education 6s of 2025 were quoted at 94 7/8-95 1/4, to yield 6.374%.
In the short-term note sector, yields fell five to 10 basis points on the day.
In late trading, Los Angeles Trans were quoted at 2.75% bid, 2.70% offered; Texas Trans were quoted at 2.77% bid, 2.75% offered; and May California notes were quoted at 2.92% bid, 2.89% offered.
NYC Water Authority
The New York City Municipal Water Finance Authority yesterday sold its first variable-rate bond issue.
Smith Barney served as book-running senior manager and remarketing agent for $100 million of adjustable-rate fiscal 1993, Series C Bonds.
The bonds were initially priced at a daily interest rate of 1.50% and will mature on June 15, 2022.
Pryor, McClendon, Counts & Co. served as co-senior manager.
Financial Guaranty Insurance Co. insured the bonds.
Mark Page, executive director of the authority, said, "The authority is particularly pleased that the Financial Guaranty Insurance Co. agreed not only to insure the variable-rate portion of the financing but also the liquidity facility which investors require through its subsidiary FGIC Securities Purchase Inc.
"The triple A rated FGIC bond insurance combined with the FGIC liquidity facility will serve to protect water rate payers against periods of market illiquidity and insure that these variable rate bonds receive the lowest interest cost available in the marketplace during the 30 years in which they will be outstanding," he said.
The bonds may be converted to either a daily, a weekly, or flexible interest rate period at the option of the authority. Last Monday, the authority sold $125 million of fixed-rate bonds.
