Recalcitrant buyers gave a mixed review of new issues and secondary product yesterday as the market continued to suffer from the effects of a sharp downturn and too much supply.
Municipals opened with a heavy tone, traders said, and market players talked of giving up more ground on the heels of last week's big losses.
"It feels very heavy and people who were hoping we'd get a bounce realize we're not going to," said one trader. "All we're getting is more deals. "
But the Street didn't quite give up yesterday and some traders were able to find pockets of strength and those bonds traded up 1/8 to 1/4 point.
But, so far, there was little depth to any of the up-trading and market players reported tedious dealings with finicky buyers.
"They were hard to pin down today," a trader said. "It was excruciating."
Although most market players say the jury is still out on fate of interest rates in the long-run, there was more talk of a reversal after yields hit record lows in recent months.
"We've had a good long bond rally and this could be the beginning of what we'll see for a long time to come," a trader said. "It doesn't feel like they want to give in yet but it seems like the market hasn't come to grips and gotten out.
"When they do that will be the final blow and is probably the buying opportunity if you played this trade right," he said.
But in the meantime, Treasury yields held steady and tax-exempt prices closed mixed on the day.
"It firmed up toward the end of the day and you saw some strength," a trader said. "Some people are thinking it might be oversold, but there was no depth to it."
Measures of secondary supply continued to show an over-supply of bonds in dealer hands. The Blue List of dealer inventory yesterday rose $54.2 million, to $2.15 billion.
In the debt futures market, the September municipal contract settled up 1/32 to 100.20. The MOB spread narrowed to negative 430 from negative 431 Monday.
In new issue activity, competitive deals generally were priced right on current market levels with mixed results.
In the negotiated sector, yields were raised as much as five basis points as that sector backed up for the sixth day in a row.
Yields had risen enough for an issue of $135 million Clark County, Nev., refunding issue to postponed a competitive sale.
Topping the competitive slate, Minnesota tested the high-grade market with two offerings.
The issues were priced right on current yields, except in the midrange, where it was priced about three basis point cheaper, indicative of other issues.
Prudential Securities won the two Minnesota deals totaling $358 million.
The firm won $21 0 million general obligation various purpose bonds with a true interest cost of 5.149%. First Boston Corp. had the cover bid with a TIC of 5.1493%.
Prudential reported an unsold balance of about $68 million near session's end.
Serial bonds were reoffered to investors at yields ranging from 2.60% in 1994 to 5.50% in 2013.
Prudential took down $148 million GO refunding bonds with a TIC of 5.1353%. First Boston also had the cover bid for this portion with a TIC of 5.1416%.
An unsold balance of $62 million was reported near the end of trading. Serial bonds were reoffered at yields ranging from 3.70% in 1996 to 5.45% in 2011.
Both issues are rated Aa by Moody's Investors Service, AA-plus by Standard & Poor's Corp., and AAA by Fitch Investors Service.
Morgan Stanley & Co. won $177 million Hillsborough County, Fla., refunding utility revenue bonds with a TIC of 5.5106%.
An unsold balance was unavailable.
Serial bonds were reoffered to investors at yields ranging from 2.60% in 1994 to 5.65% in 2013. A 2016 term, containing $43 million of the loan, was reoffered as 5 1/2s to yield 5.70%. The issue is rated Baal by Moody's and BBB-plus by Standard & Poor's.
Merrill Lynch & Co. won $178 million Los Angeles, Calif., unlimited tax GO and refunding bonds with a TIC of 5.2187%.
Merrill reported an unsold balance of about $60 million late in the day.
Serials were reoffered at yields ranging from 2.90% in 1994 to 5.55% in 2013. The bonds are rated Aa1 by Moody's.
Topping the negotiated slate, Goldman, Sachs & Co. priced $450 million Connecticut special assessment unemployment compensation advance fund revenue bonds and connecticut unemployment revenue bonds.
The state is authorized to borrow up to $1 billion.
The firm said the account was closed late in the afternoon, but Prices were left at the original levels.
A Goldman underwriter said there was an extensive pre-marketing campaign and retail investors took down $75 million to $1 00 million of the issue. The underwriter said there would be bonds left for the Street, primarily in the 1998 to 1999 range.
Non-callable serial bonds were priced to yield from 3. 1 0% in 1994 to 4.75% in 2000.
Maturities from 1994 through 1996 are rated MIG-1 and Al by Moody's, A-plus by Standard & Poor's, and Fitch Investors Service. The Moody's short-term rating was added to attract certain short-term investors, Goldman said.
The remaining bonds are insured by the AMBAC Indemnity Corp. and rated triple-A by Moody's and Standard & Poor's. Fitch, which does not rate AMBAC, rates the bonds AA-plus.
Yesterday's deal was the first of three issues that will be used to bail out the bankrupt state unemployment benefits pool. The state is authorized to borrow up to $1 billion.
State officials said the $450 million of fixed-rate bonds will be followed by an integrated swap of approximately $200 million in mid-August. About $200 million of variable-rate bonds is expected to be sold in early September.
Because of the state's prolonged economic difficulties and employment problems beginning in the late 1980's, the state pool of unemployment benefits dried up.
Typically, the benefits pool is filled by contributions from employers but the regional recession called for more benefits than was being provided. The state was forced to borrow from the federal government at rates as high as 7.45% to provide benefits.
A clause in the federal government's borrowing legislation, though, allows states to repay their loans with tax-exempt bond proceeds before September 30th, interest free.
State officials said the three bond sales will allow the state to accomplish this.
Connecticut Gov. Lowell S. Weicker also recently signed legislation to ensure that the benefits pool will be better funded in the future.
Previously, the fund was paid on the first $7.100 of an employee's salary. But, beginning in January, that amount will rise over the next four years to $15,000.
"We expect the three sales to satisfy requirements for the rest of the year." said Catherine Boone, spokeswoman for the state treasurer's office. "It would be possible to do one more sale this year, but we'd rather not.
Other Negotiated Sales
In other action, Smith Barney, Harris Upham & Co. priced and repriced $440 million North Carolina Eastern Municipal Power Agency revenue and refunding bonds.
Serial bond yields were raised by five basis points from 2001 through 2007 and term bond yields were raise by three basis points in 2013. Series D bond yields were raised by three basis points in 2016.
The final offering included $360 million refunding bonds priced to yield from 3.50% in 1995 to 5.70% in 2007. A 2013 term was priced as 7s to yield 5.88% and a 2021 term was priced as 5s to yield 5.90%.
There also was $80 million revenue bonds priced to yield 5.90% in 2013 and 5.93% in 2016. A 2014 term, containing $16 million of the loan, was not formally reoffered.
The bonds are rated A by Moody's and Fitch and A-minus by Standard & Poor's.
B.C. Christopher priced $ 104 million Kansas Turnpike Authority turnpike revenue bonds.
Serial bonds were priced to yield from 2.70% in 1994 to 5.45% in 2009. A 2013 term was priced as 5 1/4s to yield 5.55% and a 2017 term was priced as 5 1/2s to yield 5.60%. The issue is AMBAC-insured and rated triple-A by Moody's and Standard & Poor's.
Power Authority Refunding
The New York State Power Authority yesterday announced that its board of trustees approved a $1 billion revenue bond refunding and the appointment of a bond syndicate for the sale.
The refunding is the authority's largest bond sale, according to John J. O'Brien, president of O'Brien Partners Inc., the authority's financial adviser.
In a statement, the authority said portions of the authority's series G,N, S,T,U, and X general purpose revenue bonds will be refunded. The coupons on the outstanding serial and term debt range from around 6.00% to around 7.40%.
The sale is expected in the third or fourth week of August, said Robert Tscherne, executive vice president of finance and administration for the authority. Tscherne said the refunding is being done to achieve interest rate savings.
Tscherne said the authority estimates a net present value savings of $90 million and $100 million from the refunding.
The authority last sold debt in the spring of 1992, O'Brien said.
PaineWebber Inc. was named bookrunner and co-senior manager and Goldman Sachs was named a co-senior manager on the offering in what the authority billed as a new and formal way of selecting underwriters.
In the past, the authority did an informal review of firms and selected syndicates based upon that review, Tscherne said. This time, the authority sent out a request for qualifications, he said.
The bond scandals rocking the municipal market and Gov. Mario M. Cuomo's call for a review of how the state and state authorities' select bond syndicates and their bonding practices did not spur the authority to change its selection policy and issue a formal RFQ, Tscherne said.
Rather, it was a desire to see more competition between firms for slots in the syndicate, encourage more firms to participate the process, and see new ideas, he said.
O'Brien said that the authority was "not directed to do it this way. "
Tscherne said 23 firms responded to the RFQ, which was sent out about 2 1/2 weeks ago.
The RFQ was used to "take a look at what new products and ideas were out there and create a management team that could sell those ideas and products," O'Brien said.
Traders reported scattered activity and some bonds had changed hands late in the day at higher prices, but the session was termed dull overall.
In secondary dollar bond trading, prices were mixed on the day, traders said.
In late action, New York City 5.80s of 2013 were quoted at 97 1/8-5/8 to yield 6.05%; PICA MBIA 5 5/8s of 2023 were quoted at 5.85% bid, 5.82% offered; and WPPSS MBIA 5.60s of 2015 were quoted at 5.89% bid, 5.83% offered.
New York LGAC 5 1/2s of 2018 were quoted at 5.86% bid, 5.84% offered; Puerto Rico 5 1/2s of 2019 were quoted at 5.7 1 %, less one point; and Salt River 5 1/4s of 2019 were quoted at 5.79% bid, 5.76% offered.
In short-term note trading, yields were three to five basis points higher on average, traders said.
In late action, California Rans were quoted at 3.02% bid, 2.98% offered and New York State Trans were quoted at 2.57% bid, 2.55% offered.