Municipals closed mixed yesterday, but gains were too meager to give the market the momentum it needed to break out of a long-standing price range.
Instead, bonds chopped through the parameters of a familiar range, with a 6% long bond at the epicenter.
The credit markets opened lower after another snapshot of the economy showed some improvement. The Treasury long bond dropped 22/32 to yield 6.04%, while the December municipal contract fell 12/32 to 103.08 after the Commerce Department reported that the U.S. economy grew at a moderate annual rate of 2.8% in the third quarter, a significant pickup from the sluggish 1.9% pace of the second quarter.
Adding to downward pressure, initial state unemployment insurance claims fell 4,000, to a seasonally adjusted 347,000 in the week ended Oct. 23.
The bond markets looked like they were in for a precipitous drop until Federal Reserve Governor Susan Phillips remarked that fourth-quarter gross national product could post a weaker showing. Sellers were assuaged, but prices began to gyrate in both the Treasury and municipal markets as players jockeyed for position.
By mid-morning, tax-exempts were stewing in a familiar malaise, with prices quoted down 1/8 to 1/4 point. The horizon brightened somewhat when the Treasury market began to take back some ground around mid-session. A Commerce Department economist was quoted as saying inflation would remain in check, and the bid for government bonds began to improve even more.
Suddenly, traders said buyers had decided bonds were cheap enough and the long bond shot higher. Governments moved steadily higher throughout the afternoon and were quoted up 19/32 to yield 5.95% near the end of New York trading. Tax-exempt traders, meanwhile, said they were frustrated by a lack of liquidity and trading was light. By session's end, prices were quoted decidedly mixed. Some bonds posted gains of 1/8 to 1/4 point, while others lost the same amount of ground.
In secondary dollar bond trading, Florida Board of Education 5 1/8s of 2022 were quoted at 96 3/4-7/2 to yield 5.34%; Los Angeles DEWAP 5s of 2033 were at 93-1/2 to yield 5.43%; and New York City 5 1/2s of 2017 were 5.79% bid, 5.72% offered.
In the debt futures market, the December municipal contract settled at the high of the day, up 9/32 to 103.29. The contract hit a low of 103.04. The MOB spread widened to negative 482 from negative 476 on Wednesday, as municipal futures continued to fall behind governments.
Many traders said the bid for bonds was still weak and that there were ready sellers in the wings.
"This thing is still very much up in the air," a trader said. "It got a little overdone and we saw some improvement, but there's no telling if we've found support."
Players said the market would need more than one good session to lighten dealer inventory enough where prices could make any significant headway. Dealers continued to hold a heavier load of bonds, reflected by The Blue List of dealer inventory, which rose $66.6 million, to $2.09 billion.
Underwriters were less active yesterday as issuers took a breather after posting a wide range of deals Tuesday and Wednesday.
Topping the negotiated sector, a 19-member syndicate led by CS First Boston priced, repriced, and restructured $173 million Triborough Bridge and Tunnel Authority general purpose revenue bonds.
At the repricing, a 2022 term maturity was replaced by 2014 and 2022 maturities, and 2021 and 2022 maturities, were added to the zero coupon bond scale. Yields, meanwhile, were lowered by 10 basis points in 1995 and by five basis points from 1988 to 2002.
The final scale included serials priced to yield 3% in 1995 and from 3.90% in 1998 to 5.05% in 2008. A non-callable 2014 term, containing $26 million of the loan, was priced with a coupon of 5% to yield 5.25%. A 2020 term, containing $42 million of the loan, was priced as 5s to yield 5.293%. There also were non-callable zero coupon bonds priced to yield from 5.30% in 2009 to 5.505 in 2017 and 5.55% in 2021 and 2022.
The TBTA bonds are rated A by Moody's Investors Service. The managers said they expect an A-plus from Standard & Poor's Corp.
Topping the competitive sector, a CS First Boston group won $163 million Virginia Housing Development revenue commonwealth mortgage bonds, subject to the AMT, with a true interest cost of 2.777%.
The firm reported an unsold balance of about $62 million late in the day.
The offering included a Series I 1994 bullet maturity, containing $119 million, priced at par to yield 2.80%. A Series J 1994 bullet, containing the remaining $44 million, was priced at par to yield 2.70%.
The issue is rated AA/MIG-1 by Moody's.
Elsewhere, $95 million Rhode Island full faith and credit general obligation bonds were won by a Lehman Brothers group with a true interest cost of 5.072%.
The firm reported on unsold balance of $8 million late in the day.
Serial bonds were reoffered to investors at yields ranging from 2.80% in 1994 to 5.35% in 2013.
Maturities from 1994 through 1998 are AMBAC-insured, while the 2009 and 2010 maturities are FGIC-insured. The AMBAC bonds are rated triple-A by Moody's and Standard & Poor's, the FGIC-insured bonds are rated triple-A by Moody's, Standard & Poor's, and Fitch Investors Service. The remaining bonds are rated A1 by Moody's and double-A-minus by Standard & Poor's and Fitch.