Tax-exempt futures led cash higher yesterday in sympathy with a Treasury market rally on economic reports that proved positive for bonds.
The Treasury market trekked steadily higher yesterday, mainly on news that inflation remains in check. The producer price index for September gained 0.2%, while the core index, excluding food and energy, posted no change,the Labor Department reported.
Also a boost for bond prices, initial state unemployment insurance claims increased 8,000 to a seasonally adjusted 329,000 in the week ended Oct. 9.
The markets were not fazed by a 0.1% gain in retail sales. or a revised 0.5% gain in August, which was up from the 0.2% rise initially reported.
The 30-year bond traded through record low yields during the afternoon. hitting 5.84% prior to the New York close. The previous record low close was set on Sept. 8 when the long bond was quoted at 5.86%, although it traded as low as 5.83%.
The December municipal futures contract finished right on top of its game, settling just below the high the day. The contract settled up 21/32 to 105.30, after posting a high of 105.31. The MOB spread widened to negative 489 from negative 483 on Wednesday, as governments outran municipals.
Sellers held cash prices back. Traders reported secondary blocks of bonds up for sale and by session's end, prices were quoted up 1/4 to 1/8 point, compared to much bigger government market gains. The Treasury 30-year bond closed up 30/32 to 5.846%.
The impact of the sellers could be seen in The Blue List yesterday, which rose $55.5 million, to $1.7 billion, despite price gains.
Action was dull as market players continued to play the wait-and-see game ahead of today's consumer price report.
Nevertheless, traders reported a firm tone, positive new issue results, and business being done on deals priced earlier in the week.
For example, Salt River Project Agricultural Improvement and Power District, Ariz., refunding revenue bonds were freed to trade and made gains. In late secondary trading, the 5s of 2016 were quoted at 5.24% bid, 5.22% offered. They were originally offered to investors at 5.289%.
The New York City Municipal Water Finance Authority is eyeing a $500 million refunding of authority debt to take place in the end of November, city officials say. Smith Barney Shearson will serve as bookrunning senior manager on the transaction, if it takes place. City officials could not provide details on potential savings. The deal could be accompanied by a city general-obligation bond refunding of $400 million to $600 million, city officials said. In other secondary dollar bond trading, New York City Group C 5 3/8s of 2022 were quoted up 1/2 at 5.70% bid, 5.67% offered; Florida MPA AMBAC 4 1/2s of 2027 were up 1/4 at 5.16% bid, 5.14% offered; and LA DEWAP 5s of 2033 were quoted at 94 7/8-95 to yield 5.31%. In follow-through business, CS First Boston, senior manager for $171 million Regents of the University of California refunding revenue bonds, reported all bonds sold and the account closed.
In the short-term note market, yields were three to five basis points lower on the day, traders said.
In late action, California Rans were quoted at 2.68% bid, 2.65% offered; New York State Trans were at 2.55% bid, 2.50% offered; and Texas Trans were 2.69% bid, 2.65% offered.
In competitive action, $145 million California full faith and credit various purpose general obligation refunding bonds were won by Morgan Stanley & Co. with a true interest cost of 5.2453%.
Bank of America had the cover with a TIC of 5.2562%. An unsold balance was unavailable late yesterday. Serial bonds were reoffered to investors at yields ranging from 2.60% in 1994 to 5.20% in 2015. A 2017 term, containing $67 million, was not formally reoffered. A 2019 term, containing $65 million, was priced as 5.15s to yield 5.25%.
The bonds are rated double--A by Moody's and Standard & Poor's, except for the 2017 maturity. Those bonds are insured by Capital Guaranty and are rated triple-A by Moody's Investors Service and Standard & Poor's Corp.
In light negotiated pricing action, Smith Barney Shearson priced $111 million revenue bonds for the Connecticut Health and Educational Facilities Authority Saint Francis Hospital and Medical Center.
The firm said it had received the verbal award at the original price levels.
Serial bonds were priced to yield from 3.60% in 1997 to 4.95% in 2008. A 2013 term was priced as 5s to yield 5.10% and a 2023 term, containing $58 million, 5s to yield 5.175%.
The bonds are insured by the Financial Guaranty Insurance Co. and rated triple-A by Moody's and Standard & Poor's.
Merrill Lynch & Co. priced, repriced, and restructured $82 million single-family program bonds for the Maryland Community Development Administration Department of Housing & Community Development.
At the repricing, 2009 and 2010 maturities were added and serial bond yields were lowered by five basis points from 1995 through 2008. Term bond yields in 2012 and 2017 were also lowered by five basis points.
The final scale included serial bonds priced at par to yield from 3.25% in 1995 to 5.25% in 2010. A 2012 term was priced at par to yield 5.30%; a 2016 term, containing $24 million, was priced as a tender option bond and was not formally reoffered. A 2017 term was priced at par to yield 5.35%. The managers said they expected the bonds to be rated Aa by Moody's.
In other news, the New York City Municipal Water Finance Authority is eyeing a $500 million refunding of authority debt to take place in the end of November, city officials say. Smith Barney Shearson will serve as bookrunning senior manager on the transaction, if it takes place. City officials could not provide details on potential savings. The deal could be accompanied by a city general obligation bond refunding of $400 million to $600 million, city officials said.