Market players went for broke yesterday, trading bonds up 1/2 point, while underwriters boosted prices on $2 billion of new deals, pushing yields of most longer maturities below 6%.
The municipal market has enjoyed a week and a half of strong sessions, primarily because of voracious investor appetite for a dwindling supply of bonds. But it got an extra shot of adrenalin yesterday morning, when the Conference Board's consumer confidence index plummeted 11.6 points to 61.01% in July, much more than expected.
Prices rose 1/4 to 3/8 point during the morning session, and then paused ahead of the Treasury auction. But the surge higher resumed when the auction proved successful, and the market finished up 1/2 point on average, but as much as one point for some bonds.
For example, Salt River, Ariz., 5 3/4s of 2019 were quoted at 98-1/4 to yield 5.89% on the bid side late yesterday, compared to 97-98 to yield 5.97% the previous session.
Meanwhile, in the debt futures market, the September municipal contract settled up 21/32 to 100.08.
"It was a very bullish and hectic day," one trader said. "Everybody loves it. It's like Ulysses: They tied him to the mast because he's dying to buy it. The bad news is, we're probably overextended."
Several other traders noted that the rally still appears to have strength, and could continue at least until the upcoming annual Treasury refunding.
Investors Grab New Deals
"There doesn't seem to be a reason to take it lower, which makes people nervous," a trader said. "The market feels a little tired, but you're supposed to stay on the horse until it throws you off."
The rally allowed underwriters to price a wave of new issues aggressively for buyers, laden with cash from bond redemptions and feeling an acute need to invest. Tax-exempts remain attractive compared to other options, market observers said, and the high price levels did not keep new deals from being snapped up.
Leading competitive action, a syndicate headed by First Chicago Capital Markets won $319 million of triple-A rated Missouri general obligation bonds with a true interest cost of 5.332%.
The deal, which was postponed by the issuer in February due to market conditions that prevented the state from garnering a 6 1/4% rate on long bonds, was priced with a maximum yield of 5.60%.
Despite the rate, the firm reported an unsold balance of about $13 million late in the session, concentrated in the 1998 maturity.
Serial bonds were reoffered to investors at yields ranging from 2.30% in 1993 to 5.60% in 2010. Coupons ranged from 7.50% in 1993 to 5% in 2010.
The bonds are rated triple-A by Moody's, Standard & Poor's, and Fitch.
The negotiated sector featured the bulk of the day's new issuance and yields were lowered on most of the issues that were priced.
Leading the way, PaineWebber Inc. priced and repriced $420 million of various bonds for San Antonio, Tex., to lower yields.
At the repricing, serial bond yields were lowered by as much as 20 basis points on the short end and five basis for longer serials. Term bond yields were lowered by five basis points.
The final reoffering scale included $400 million of general improvement refunding bonds priced to yield from 3.50% in 1994 to 5.75% in 2007. A 2009 term bond was priced as 5 3/4s to yield 5.855%. A 2013 term, containing $105 million of the loan, was priced as 5 3/4s to yield 5.92%.
About $20 million of combination tax and revenue certificates were priced to yield from 3.50% in 1994 to 5.75 in 2007. A 2009 term was priced to yield 5.85%, and a 2013 term was priced as 5 3/4s to yield 5.92%.
The bonds are rated double-A by Moody's Investors Service, Standard & Poor's Corp., and Fitch Investors Service.
Mellon Bank tentatively priced $274 million of Pennsylvania State University bonds with a maximum yield of 5.93% in 2016.
The offering included $259 million of second refunding series bonds priced to yield from 2.70% in 1993 to 5.80% in 2008. A 2016 term was priced as 5 1/2s to yield 5.93%. There was also $15 million of Series B bonds priced to yield from 2.70% in 1993 to 5.80% in 2008. A 2016 term was priced as 5 1/2s to yield 5.93%.
The managers said they expect Moody's to rate the issue A1 and Standard & Poor's to rate it AA-minus.
PaineWebber priced and repriced $177 million of Virginia Public Building Authority state building revenue bonds to lower long serial bond yields by five basis points and the term maturity by five basis points.
The final scale included serials priced to yield from 3.50% in 1994 to 5.70% in 2007. A 2012 term was priced as 5 3/4s to yield 5.85%.
The issue is rated double-A by Moody's and Fitch and the managers said they also expect Standard & Poor's to rate the issue double-A.
Merrill Lynch & Co. priced and repriced $156 million of commonwealth of Kentucky state property and building commission revenue and revenue refunding bonds. Longer serial bond yields were lowered by five basis points, while the 2012 term bond yield was lowered by about four basis points.
The final reoffering scale included serial bonds priced to yield from 2.40% in 1992 to 5.90% in 2007. A 2012 term was priced as 6s to yield 6.043%.
The issue is rated A by Moody's and Standard & Poor's, and A-plus by Fitch.
Meridian Capital Markets tentatively priced $108 million of Berks County, Pa., GO bonds.
Serials were priced to yield from 2.70% in 1993 to 5.85% in 2008 and 5.974% for term bonds in 2012. Zero coupon bonds were priced to yield from 6.25% in 2013 to 6.30% in 2020.
The issue is FGIC-insured and triple-A rated by Moody's, Standard & Poor's, and Fitch.
Returning to the competitive sector, an issue of $98 million of Suffolk County Water Authority, N.Y., refunding bonds was won by Merrill Lynch with a TIC of 5.738% for series A bonds and 5.648% for Series B bonds.
The issue included $40 million of Series A bonds priced to yield from 5.60% in 2010 to 5.56% in 2012 and 5.70% in 2017. About $58 million of Series B bonds was priced to yield from 2.80% in 1993 to 5.60% in 2009 and 5.70% in 2016.
The issue is insured by the AMBAC Indemnity Corp. and triple-A rated by Moody's and Standard & Poor's.
Traders said that most of the value in the market was in the primary sector, but secondary trading was brisk, fueled mostly by broker bid-wanted lists.
In secondary dollar bond trading, Osceola County, Fla., 6.10s of 2017 were quoted at 101-1/4 to yield approximately 6.02% on the bid side and Colorado Springs 6 1/8s of 2017 were quoted at 101 1/4-3/8 to yield 5.95%.
In the short-term note sector, prices were slightly lower on average, traders said.
In late action, Iowa Trans were quoted at 3.02% bid, 2.95% offered, Los Angeles Trans were quoted at 2.82% bid, 2.78% offered, and New York City Tans were quoted at 2.82% bid, 2.80% offered. Wisconsin notes were quoted at 2.92% bid, 2.85% offered, and New York State Trans were quoted at 2.83% bid, 2.80% offered.