Municipals salvaged a 1/4 point gain yesterday after dollar woes eroded a bigger advance that was fueled by a successful two-year Treasury note auction.

Munis "were up about 3/8s through the early afternoon, and they came off," a municipal analyst said, "It was Treasuries ."

The 30-year Treasury bond finished the day up slightly more than 1/8 point to yield 7,.53%. The long bond had been up more than 1/2 point following the two-year auction. Treasuries lost ground after the U.S. dollar slipped. In late New York trading, the dollar was quoted at 97.90 yen. An economists comments on prospects for progress between the U.S. and Japan on trade issues triggered the dollar's decline. The Treasury will auction five-year notes today.

The municipal market saw moderate secondary activity yesterday, with dollar bonds up 1/4 point, and yields on high-grade issues improving by about three basis points, the analyst said.

"There were a few lists but nothing huge," one municipal trader said. Yesterday was "just a quiet day with a little business getting done, and that was it," he said.

Elsewhere, a CS First Boston group won $111 million Los Angeles unlimited tax general obligation bonds, bidding a true interest cost of 5.85%. The offering consisted of serial bonds reoffered to investors at a top yield of 6.20% in 2014. MBIA insured the bonds from 1999 to 2014. Moody's Investors Service assigned an underlying rating of Aal, while Standard & Poor's Corp. assigned an AA rating. No balance remained from the deal at day's end.

Bank of America had the cover bid with a 5.871177% TIC, narrowly edging out Merrill Lynch & Co.'s 5.877976%, according to Lynne Ozawn, a senior administrative analyst with the city. Prudential Securities was the next closest bidder with 5.886% and Morgan, Stanley & Co. was last with 5.887%, she said. Ozawa said Los Angeles was pleased with the closeness of the bids.

"We looked at it, but we didn't take any of it," David MacEwen, senior municipal portfolio manager at the Benham Group, said yesterday, adding that while the deal wasn't cheap, it "looked like it was priced reasonably well."

We just have had no cash flow so said. While summer doldrums account for some of the problem, investors' fear of higher interest rates is also stemming inflows, he said.

"People [are] shying away from fixed income assets as a class altogether," MacEwen said, adding that investors afraid of higher rates are likely moving into money market funds these days. Including money market funds, the Benham Group has about $1.8 billion of California paper under management.

Ozawa said some proceeds will go toward repair existing earthquake damage, and toward limiting damage from future quakes. The remainder will go toward police facilities.

In negotiated action yesterday, a CS First Boston group priced and repriced $153 million State of New York Mortgage agency homeowner mortgage revenue bonds.

The offering contained $99 million bonds, subject to the alternative minimum tax, and $54 million of bonds exempt from the tax.

The $99 million portion offered a top yield of 6.65% in 2026. The $45 million portion offered a top yield of 6.45% in 2017.

At the repricing, yields on the serial bonds of both the AMT and nonAMT pieces were lowered by 10 basis points, a source familiar with the offering said. The yield on the AMT portion's 2026 tenn was also lowered by 10 basis points. The source said the account was closed, and cited interest coming from retail as well as from New York funds.

Thruway Goes Private

The New York State Thruway Authority yesterday took the unusual step of selling $95 million in short-term notes through a private placement.

Thruway Authority officials could not be reached for comment, but sources close to the issue said the transaction most likely marks the first private placement of debt in the agency's history.

The authority chose to sell the notes privately for two main reasons sources say. First, the authority felt it needed to complete the deal immediately, and it could not disclose several key changes in its financial plans in time. These changes must be disclosed if the agency sold the securities through a public issue.

In addition, the authority did not want to the market to confuse yesterday's issue with an upcoming sale to finance state road improvements.

The authority used OBP Municipals as the deal's agent placement agent. OBP is owned by the agency's financial adviser, O'Brien Partners.

The notes were issued through a competitive bid that took place yesterday afternoon. Sources with knowledge of the issue say the notes, due in April 1995, attracted bids in the range of 4.09% to 4.19%.

The securities, known as bond anticipation notes, are supported by general Thruway Authority revenues, and will be replaced by thruway revenue bonds in March 1995, sources say.

Charles Gasparino contributed to this column.

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