The municipal market braced for today's onslaught of new deals after turning in mixed results in both the primary and secondary sectors yesterday.
Just about $2 billion of new issues hit the market yesterday and just as much is slated for sale today. The results of the sales are likely to determine near-term price movements, settling a market that has been concerned about its next step.
Among the issues on tap for today, Puerto Rico weighs in with a negotiated offering of $1.1 billion revenue bonds. The issue is expected to be priced with a top yield of 5.75%.
The credit markets yesterday opened with good news about inflation, but neither the Treasury nor the municipal markets were able to rally after the news.
The producer price index for finished goods dropped 0.3% in June as wholesale prices declined across-the-board and partly retraced sizable increases in the first four months of the year.
The wholesale core rate of inflation, excluding food and energy, edged down 0.1% after rising in 10 of the last 12 months.
Treasury prices were mixed after the PPI report, even though inflation retreated. The markets face one more inflation hurdle when today's consumer price report is released.
Analysts said prices had nowhere to go because the market had already priced in the positive effects of a favorable report.
In the tax-exempt arena, burgeoning supply kept a cap on prices and secondary activity.
By session's end, the market was quoted narrowly mixed with dollar bonds unchanged or posting 1/8 point losses and gains.
Debt futures were addled just enough to send the MOB spread to a new all-time low, after first breaking the record Monday with a negative 399 reading.
Yesterday the MOB widened to negative 400 after the September municipal contract settled up 102.11, behind Treasury futures.
New Issues
Turning to the primary sector, new issues pricings that players had hoped would test investor demand only confused the picture.
Connecticut sold bonds competitively with good results at yields five basis points lower than Monday's average high-grade levels.
Negotiated pricings, however, generally turned in mixed results at cheaper levels, although the size of some of the offerings was raised.
Merrill Lynch won the $175 million Connecticut general obligation bonds, with a true interest cost of 4.8804%.
The firm reported an unsold balance of $19 million by early afternoon. Near the close, the balance sold down to $15 million.
Smith Barney, Harris Upham & Co. had the cover bid with a TIC of 4.9489%.
Serial bonds were reoffered to investors at yields ranging from 3.25% in 1995 to 5.25% in 2012. The bonds are rated double-A by Moody's Investors Service and Standard & Poor's Corp.
In the negotiated sector, a 17-member syndicate led by Smith Barney priced, repriced, and restructured $259 million Cook County, Ill., general obligation bonds.
At the repricing, the amount was boosted from $257 million. Serial bond yields were lowered by about two basis points from 2005 through 2008, while the 2012 term yield was raised three basis points and the 2018 term yield was raised by two basis points. Serial maturities were added in 2009 and 2010.
The final offering included serial bonds priced to yield from 2.25% in 1993 to 5.60% in 20108. A 2012 term was priced as 5 1/2s to yield 5.65% and a 2018 term, containing $75 million of the loan, was priced as 5 1/2s to yield 5.72%.
The bonds are MBIA-insured and rated triple-A by Moody's and Standard & Poor's.
Prudential Securities Inc., leading a 16-member syndicate, tentatively priced another Cook County, Ill., GO bond deal, totaling $236 million.
The offering included serial bonds priced to yield from 2.75% in 1994 to 5.50% in 2008. There also was a 2012 term maturity priced as 5 1/2s to yield 5,625% and a 2023 term, containing $114 million of the loan. priced as 5s to yield 5.68%.
The offering is MBIA-insured and triple-A rated by Moody's and Standard & Poor's.
Dominating new issue action in the negotiated sector, Goldman. Sachs & Co. priced and restructured $695 million Washington Public Power Supply System refunding revenue bonds for Nuclear projects 1, 2, and 3.
After the restructuring, the total amount of the offering was raised from the original $505 million.
Maturities were added in 2009 and 2010 for Projects No. 1 and No. 3, while a 2012 term bond was eliminated from the the Project 1 offering. Term bonds maturing in 2012, 2015, and 2017 were added to the Project No.3 portion of the the offering.
The final offering included $193 million Nuclear Project No. 1 serial bonds, priced to yield from 2.85% in 1994 to 5.79% in 2010. A 2015 term, containing $97 million of the loan, was priced as 5.60s to yield 5.75%.
There also was $168 million Nuclear Project No. 2 serial bonds, priced to yield from 2.85% in 1994 to 5.70% in 2008 and 5.82% for term bonds in 2012.
There also was $283 million Nuclear Project No. 3 serial bonds priced to yield from 2.85% in 1994 to 5.79% in 201 0. A 2012 term was priced as 5 5/8s to yield 5.82%; a 2015 term was priced as 5.60s to yield 5.75%: a 2017 term was priced as 5.60s to yield 5.75%: and a 2018 term was priced as 5.70s to yield 5.875%.
The serial bonds are non-callable through 2009.
The offering also included $25.5 million Project No. 2 periodic auction reset securities and corresponding inverse floating rate securities, that were not formally reoffered to investors.
Bonds in 1998 were insured by the Municipal Bond Investors Assurance Corp. and rated triple-A by Moody's and Standard & Poor's. Bonds in 2004 were insured by the Financial Guaranty Insurance Co. and rated triple-A by Moody's, Standard & Poor's, and Fitch Investors Service.
The remainder of the loan is rated double-A by Moody's, Standard & Poor's, and Fitch.
Standard & Poor's Corp. placed the deal on Creditwatch with negative implications along with $6.8 billion outstanding Nuclear Project Nos. 1, 2, and 3 revenue bonds, which were placed there on April 26.
Although the rating was affirmed, Standard & Poor's said the placing of the bonds on Creditwatch reflects the deterioration of the Bonneville Power Authority's financial performance over the past two fiscal years, which has prompted a significant rate increase. The agency said, however, that if certain rate increases and adjustments are made, the bonds would be taken off Creditwatch.
As for supply, the market can look forward to more new bonds as the 30-day visible grew to $8.67 billion yesterday from $8.19 billion Monday.
Topping today's new issue slate, Merrill Lynch is expected to price up to $1.1 billion of Puerto Rico highway revenue and revenue refunding bonds today. The size of the offering was boosted from $806 million, market sources said yesterday.
There will be no insurance available on the issue. the firm said yesterday.
Secondary Markets
Market players also expect $600 million Georgia general obligation bonds to dominate action when priced by First Boston Corp. Traders reported some good bids for secondary product in the afternoon, but the session was tame overall.
In follow-through business, Goldman Sachs freed $229 million Intermountain Power Agency power supply revenue refunding bonds to trade.
In late secondary trading, the 5 1/4s of 2014 were quoted at 96 3/4-97 1/4 to yield 5.51%, right around the original reoffering level.
In other secondary dollar bond trading, prices were mixed, with bonds posting gains of 1/8 or losses of 1/8, while other bonds were unchanged.
In late action, New York LGAC 5 1/2s of 2018 were quoted at 5.70%, less 1/4; Fulton-DeKalb Hospital MBIA 5 1/2s of 2020 were quoted at 5.69% bid, 5.66% offered; and SCPPA MBIA 5s of 2022 were quoted at 92 3/8-5/8 to yield 5.53%.
Pennsylvania COP AMBAC 5s of 2015 were quoted at 92 5/8-7/8 to yield 5.58%; Orange and Orlando FGIC 5 1/2s of 2018 were quoted at 99-1/4 to yield 5.57%; and Washington Public Power Supply System MBIA 5.70s of 2017 were quoted at 99 1/4-1/2 to yield 5.75%.
In secondary note trading, yields were mixed on the day.
