Municipal investors aren't the only ones who know that Thursday will be one of the biggest bond redemption dates in their market's history.
Crossover buyers from the corporate ranks have been spotted in the tax-exempt market in recent months hoping to benefit from heightened demand for municipal paper, generated as investors try to re-deploy funds into the muni market, said James M. Snyder, a senior vice president in fixed income management at The Northern Trust Co. in Chicago.
Northern Trust has approximately $5 billion of corporate bonds and $4 billion of municipal bonds under management, Snyder said.
About $37 billion of cash could flow into the municipal market from municipal bond redemptions, coupon payments, and maturing securities. About $12 billion of that total debt will mature or be redeemed on July 1. according to Muniview, a Bond Buyer database.
Prudential Securities puts that figure between $11 billion and $15 billion, according to a release issued yesterday.
The bond calls mean that billions of dollars" will become available for reinvestment, the release says.
"We expect that when those assets become available on July 1, individual and institutional investors will quickly reinvest the proceeds back into the tax-exempt municipal market," Gerald P. McBride, executive vice president and head of Prudential Securities' tax-exempt division, said in the release.
For their part, the corporate crossover buyers plan to sell the municipal bonds they purchase at a profit -- taking advantage of that pentup investor demand -- and then head back to buying in the, corporate arena, Snyder said.
One possible hitch in that plan, however, could be a decline in interest rates which could spur more new municipal issues.
The new municipal supply would compete with the crossover buyers' paper for investor dollars, making for a more crowded field of sellers.
Specifically, if rates decline further, municipalities seeking lower interest rates could decide to sell refunding issues to redeem outstanding, high-coupon debt.
Though that scenario is possible, "I don't think it's that likely." Snyder said. He added that a high number of municipal issues have already been defeased.
Many municipal market players also predict that refunding volume will taper off the rest of this year because the bulk of the volume sold in 1992 and most of 1993 have been refunding issues.
In the new-issue corporate market yesterday, investor demand lifted a two-part USX Corp. issue's total to $600 million from $400 million.
"Credit and price," a source familiar with the offering said, when asked what attracted buyers.
The first tranche consisted of $350 million of 6.375% notes due 1998. The noncallable notes were priced at 99.934 to yield 6.39%. or 135 basis points over comparable Treasuries. The tranche was increased from $200 million.
The second piece consisted of $250 million of 8.125% debentures due 2023. The noncallable debentures were priced at 98.724 to yield 8.24%, or 157 basis points over comparable Treasuries. The tranche was increased from $200 million.
Moody's Investors Service rates the offering Baa3, while Standard & Poor's Corp. rates it BBB-minus. First Boston Corp. was the lead manager for the offering,
Proceeds from the offering will be used to redeem a $271 million private placement offering and for general corporate purposes, the source said. USX also announced plans for an equity offering recently, he said.
In secondary trading, spreads on high-grade bonds were unchanged to "a tick or two" wider in spots, a trader there said. High-yield bonds slipped 1/8 to 1/4 point.
New Issues
Boeing Co. issued $250 million of 7.25% debentures due 2025. The noncallable debentures were priced at 98.768 to yield 7.35%, or 69 basis points over comparable Treasuries. Moody's rates the offering A1, while Standard & Poor's rates it AA. First Boston was the lead manager for the offering.
Bancomex issued $250 million of 7.5% senior notes due 2000. The noncallable notes were priced at 99.682 to yield 7.559%, or 215 basis points over seven-year Treasuries. Moody's rates the offering Ba2, while Standard & Poor's rates it BB-plus. Merrill Lynch & Co. was the lead manager.
Federal Home Loan Banks issued $200 million of 4% step-up notes due 1996. The notes were priced at par. Noncallable for a year, the notes were priced to yield 55 basis points over the Treasury's year bill. The notes are noncallable for a year, after which the coupon steps up to 4.80%. Merrill Lynch was the lead manager.
Pohang Iron & Steel issued $200 million of 6.625% notes due 2003. The noncallable notes were priced at 99.204 to yield 6.736%, or 97 basis points over comparable Treasuries. Moody's rates the offering A2, while Standard & Poor's rates it A-plus. Salomon Brothers Inc. was the lead manager.
Great Western Financial issued $200 million of 6.375% senior notes due 2000. The noncallable notes were priced at 99.333 to yield 6.495%, or 109 basis points over seven-year Treasuries. Moody's rates the offering Baa2, while Standard & Poor's rates it BBB-plus. Merrill Lynch was the lead manager.
Federal Home Loan Mortgage Corp. issued $200 million of 4.60% step-up notes due 1998 at par. The notes are noncallable for two years, after which the coupon steps up to 5.76%. Their respective spreads to Treasuries are 59 basts points over the two-year and 72 basis points over the five-year Treasury. Lehman Brothers managed the offering.
American General Finance issued $150 million of 5.875% notes due 2000. The noncallable notes were priced at 99.711 to yield 5.926%, or 52 basis points over comparable Treasuries. Moody's rates the offering A1, while Standard & Poor's rates it A-plus. J.P. Morgan Securities Inc. was the lead manager.
Times Mirror issued $100 million of 7.375% debentures due 2023. The noncallable debentures were priced at 99.734 to yield 7.397%, or 73 basis points over comparable Treasuries. Moody's rates the offering A1, while Standard & Poor's rates it A-plus. Goldman, Sachs & Co. was the lead manager.
Penn Power Co. issued a two-part first mortgage bond offering totaling $60 million. The first tranche consisted of $20 million of 6.625% bonds due 2004 at par. The noncallable bonds were priced to yield 85 basis points over comparable Treasuries.
The second tranche consisted of $40 million of 7.625% bonds due 2023. Noncallable for 10 years, the bonds were priced at 99.007 to yield 7.71%, or 103 basis points over comparable Treasuries. Moody's rates the offering Baa2, while Standard & Poor's rates it BBB. Morgan Stanley & Co. was the lead manager.
