Municipals logged another sideways session yesterday as traders tried to take bodns higher in the morning, only to be turned back by sellers in the afternoon.
Over $1 billion of new deals, meanwhile, met with a mostly tepid response as the market continued to suffer from a lack of buyers and growing supply problems.
The market opened on a firm note in sympathy with the Treasury market. But traders reported about $100 million of bonds up for sale throughout the session and little response from the Street. Some prices sagged as a result, posting 1/8 to 1/4 point losses by session's end.
In the debt futures market, the December municipal contract settled down 12/32 at 104.07, just off the low of 104.06. The MOB spread widened to negative 480 from negative 474 on Monday as the government market posted less severe losses than municipals.
Reflecting the weak bids in the secondary, term bonds from yesterday's $338 million Port Authority of New York and New Jersey competitive deal broke down on the bid-side from the original issue price in late secondary trading. For example, the Port 5 1/8S of 2021 were quoted at 98 1/4-1/2 to yield 5.24%. They were originally priced at 99.00 to yield about 5.19%, with a 1/4 point concession.
Some traders said demand was weak because the market is on hold ahead of Friday's employment number. Others cited more serious technical problems.
"There are far too many bonds around and we've got deals coming down on top of us," said one trader. "Customers don't feel compelled to jump in here. They'd rather wait until next week to buy them even cheaper."
Reflecting the heavier tone in the secondary, The Blue List of dealer inventory rose $17 million yesterday to $2.01 billion.
Some buyers have been buying at the cheaper levels in the primary, traders said. But echoing the wait-and-see attitude, some market pros urge investors to bivouac and wait the Street out.
"Bond buyers who only buy for income should continue to buy the best long-term bonds the market has to offer," said Ken Meiselman, executive vice president and head trader at JB Hanauer & Co. in a new market commentary. "But for those who buy and sell based on market conditions, now is an excellent time to take some profits and reevaluate your portfolio for balance and safety."
Despite the current market jitters, some bond traders stuck to the position that prices will remain in the narrow range that has held the market captive during recent weeks.
Underwriters turned in mixed results on new issues, which were generally priced at or below current market value, observers said.
Supply has been on the rise in recent weeks, allowing buyers to sit tight and hold out for cheaper prices. Supply shows no signs of letting up immediately as issuers queue up to sell debt in the fourth quarter.
The Bond Buyer yesterday calculated 30-day visible supply at $6.66 billion. New issue volume, including notes and bonds, totaled $259.5 billion on Oct. 4. The mark was $17.62 billion shy of 1992's record $277.12 billion.
Topping yesterday's negotiated new issue slate, a 29-member syndicate led by Lehman Brothers priced $600 million New York City general obligation bonds.
The firm said it had received the verbal award at the original issue price levels by mid-afternoon.
The final offering included $575 million fixed-rate bonds, priced to yield from 3.50% in 1995 to 5.80% in 2022. There also were $25 million adjustable rate bonds, which were not formally reoffered.
The bonds are rated Baa1 by Moody's Investors Service and A-minus by Standard & Poor's Corp. and Fitch Investors Service.
Late yesterday, Lehman was considering including Residual Interest Bonds and Select Auction Rate Securities, or RIB/SAVRS, on a $17 million portion of the deal due in 2002, market sources said.
With limited credit enhancement available to the city for pure variable rate bonds, market sources said some of the fixed-rate bonds in the deal could be converted to synthetic floating rates using interest rate swaps.
New York would agree to pay a floating rate to Lehman or another swap provider and, in return, the swap provider would pay the city a portion of the fixed rate due on its bonds.
Elsewhere, PaineWebber Inc. priced and repriced $142 million Texas Turnpike Authority Dallas North Tollway revenue refunding bonds.
At the repricing, serial bond yields were lowered by five basis points from 1995 through 1999, and by about three basis points for the 2011 through 2014 serials and for the term bonds in 2020.
The final offering included serials priced to yield from 3.25% in 1995 to 5.235% in 2014. A 2020 term, containing $61 million, was priced with a coupon of 5% to yield 5.329%.
The offering is insured by the AM-BAC Indemnity Corp. and rated triple-A by Moody's and Standard & Poor's.
J.P. Morgan Securities Inc. tentatively priced $260 million Connecticut GO refunding bonds.
The deal was made up of serial bonds only, priced to yield from 3.10% in 1995 to 5.15% in 2012.
The issue is rated Aa by Moody's, AA-minus by Standard & Poor's, and AA-plus by Fitch.
Dominating competitive action, a bidding group led by Merrill Lynch & Co. as senior manager won $338 million New York and New Jersey Port Authority consolidated revenue bonds. The offering was sold as two separate deals.
The firm reported a combined unsold balance of about $77 million late in the day. The Port Authority said in a release late yesterday it achieved a present value savings of approximately $32 million through the sales.
Merrill won $238 million non-callable bonds, bidding a true interest cost of 4.4236%, and reoffered them to investors at yields ranging from 2.70% in 1994 to 4.85% in 2008.
The bonds are non-callable and rated A1 by Moody's Investors Service and AA-minus by Standard & Poor's Corp. and Fitch Investors Service.
Merrill won the remaining $100 million callable bonds with a TIC of 5.1389%. Reoffering yields ranged from 4.25% in 2001 to 5.15% in 2015. A 2021 term, containing $42 million, was reoffered with a coupon of 5.125% to yield 5.19% in 2021.
The bonds are rated A1 by Moody's and AA-minus by Standard & Poor's.
Financial Guaranty Insurance Co. said it qualified $100 million of the Ports for insurance, while AMBAC qualified the entire deal. Insurance from both companies could be had through competitive optional bidding and elective bidding, respectively.
Traders reported a heavier tone in the secondary market as dealers stocked more bonds from new deals, unable to find enough buyers.
In secondary dollar bond trading, prices were quoted unchanged to down as much as 3/8 point, traders said.
In late action, New York State Thruway 5 1/4S of 2013 were quoted at 5.56% bid, 5.55% offered; California GO 4 3/8S of 2023 were at 91 1/4-3/8 to yield 5.34%; and Florida State Board of Education 5 1/4S of 2023 were 99-1/4 to yield 5.31%.
In the short-term note sector, yields were three to five basis points higher on average, traders said.
In late action, California Rans were quoted at 2.75% bid, 2.70% offered; New York State Trans were at 2.60% bid, 2.50% offered; and Texas Trans were 2.75% bid, 2.73% offered.