A steadier greenback bolstered Treasuries yesterday, but $500 million in bid lists tempered the advance of municipals.
"We want to do better but the bid list are just kind of holding us back," a municipal trader said.
"The tone is better, but activity wise it's almost nil," a second municipal trader said.
Mutual funds accounted for most of the selling,: apparently spurred by municipals' richness to Treasuries, a third trader "They're going to taxables," he said.
The first trader added that while a mistake in the Treasury market could be weathered with minor pain, a similar, one in the municipal market could prove significantly more injurious given the illiquidity of municipals.
He characterized tax-exempts' plight as "the inability to be wrong and walk away with [a] bruise."
Dollar bonds were quoted up 1/4 point yesterday, while high-grades were unchanged. Secondary activity was light.
In debt futures, the September municipal contract settled up nearly 3/4 point at 91 2/32s.
Yesterday's September MOB spread was negative 402, compared to negative 386 on Tuesday. The 30-year Treasury bond closed up more than a point to yield 7.39% as the dollar closed higher at 101 Japanese yen.
In negotiated action yesterday, a Smith Barney group priced $430.6 million New York City Industrial Development Agency special facilities revenue bonds.
Proceeds will be used for a 10-gate terminal at John F. Kennedy International Airport. Four airlines, Lufthansa German Airlines, Air France, Japan Airlines and Korean Air Lines will occupy the site.
The offering, which is subject to the alternative minimum tax, contained serial bonds priced to yield from 5.25% in 1999 to 6.20% in 2009. A 2015 term, containing $95.7 million, was priced at 95.468 to yield 6.40%. A 2019 term, containing $85 million, was priced at 94.496 to return 6.45%. A 2024 term, containing $140 million, was pegged at 95.103 to yield 6.50%.
At the restructuring, a 2019 maturity was created from a portion of the 2024 maturity's original total.
Moody's Investors Service and Standard & Poor's Corp. rate the offering A, while Fitch Investors Service assigns an A-minus rating.
"I did not participate," one New York portfolio manager said. "I think the deal did well because of the new name syndrome, and just given the credit, that wasn't enough to convince me," she said.
The portfolio manager cited the inability to re-let the gates in the event that the four airlines slated to use the terminal should renege. She could not justify a purchase relative to "other yield opportunities and credit stories in the state."
A source familiar with offering said that while the portfolio manager was correct, such a scenario was unlikely because it would require all four users to walk away.
Also yesterday, a PaineWebber Inc. group tentatively priced a $220 million Santa Clara Valley Water District, Calif., deal.
The offering consisted of $150 million FGIC-insured refunding and improvement certificates of participation, flood control projects series 1994A.
Serial bonds were priced to yield from 4.25% in 1996 to 5.90% in 2008. A 2015 term, containing $42 million, was priced at 97.689 to yield 6.20%. A 2024 term, containing $52.8 million, was priced at 95.995 to yield 6.30%. A 1995 maturity was done as a sealed bid.
The certificates received underlying ratings of A1 from Moody's and AA from Standard & Poor's. They are callable beginning Feb. 1,2004 at 102, declining to par in 2006.
The deal also contained $70 million water utility system revenue bonds series 1994A. Serial bonds were priced to yield from 4.30% in 1996 to 5.50% in 2004. A 1995 maturity was done as a sealed bid. Moody's rates the offering Aa, while Standard & Poor's rates it AA-minus. The bonds are noncallable.
Detroit sold $60 million of limited tax GO tax anticipation notes yesterday in a deal led by Lehman Brothers. The notes were sold in two series, with a 3% yield on $40 million of notes maturing Dec. 1, and a 3.60% yield on $20 million of notes maturing May 1.
J. Edward Hannan, executive assistant director of Detroit's finance department, said the notes were "very well received."
"There was no difficulty selling [the notes]," he said. "The name' Detroit' seemed to go very well."
Hannan said the yield on the Dec. 1 note series was lowered to 3% from 3.1% after the issue was repriced. A letter of credit from NBD Bank earned the notes a MIG-1 rating from Moody's and a SP1-plus rating from Standard & Poor's.
Detroit will use the proceeds from the cash-flow borrowing to make a $52 million payment to its pension funds by the end of the month.
In competitive action yesterday, a Merrill Lynch & Co. group won $99.9 million Dallas, Tex., limited tax general obligation bonds, bidding a net interest cost of 5.6058%. Serial bonds were reoffered to yield from 4.25% in 1996 to 6% in 2014. Bonds in 1995, 2004 and 2009 to 2011 were not reoffered.
In other news, the 30-day visible supply of municipal bonds for today totals $3.87 billion, up $228.5 million from yesterday. That comprises $1.074 billion of competitive bonds, down $22.9 million from yesterday, and $2.798 billion of negotiated bonds, up 251.3 million from yesterday.
Standard & Poor's Blue List rose $111.3 million yesterday to $2.23 billion.
Karen Pierog contributed to this column.