Prices fell in sympathy with governments and pressure from more than $7 billion of pending deals yesterday, leaving the market with a heavy tone.
The credit markets were spooked late last week by signs of higher inflation, although municipals held in well compared with the government and corporate markets.
But when the Treasury long bond rose to 6.97% by late yesterday, flirting with the 7% level, bids for tax-exempt bonds slid 1/4 to 3/8 point. The downward pressure sapped some of the market's ability to withstand continued losses in the Treasury arena.
Reflecting broader weakness in the cash market, bonds from a $668 million New York State Urban Development Corp. deal sold last week could be acquired at lower prices. The 51/2s of 2015 were quoted at 6.03% bid, less 3/4 to 1/2 point.
Secondary action was minimal yesterday, as market players braced themselves for the results of the new-issue sales, expected to begin today.
"We're treading water right here," said one seasoned trader. "The inflation numbers scared people but we need more data to confirm that the bull market is dead."
The markets may get a hint about near-term price prospects as early as today after the Federal Reserve's Open Market Committee meeting. But supply pressure is the tax-exempt market's main ailment for the moment as several sizable offerings hang over the primary.
Among the largest are $700 million Washington Public Power Supply System refunding revenue bonds; $578 million Texas Municipal Power Agency refunding revenue bonds; and $916 million New York City general obligation bonds.
In the debt futures market, the June municipal contract settled down 13/32, to 100.10, as a big retail bond firm based in New York was said to have sold up to 500 contracts. The June MOB spread widened to negative 320 from negative 315, as municipal losses were greater than those in the Treasury market.
Looking to supply, The Bond Buyer calculated 30-day visible supply at $9.38 billion. Secondary supply was also on the increase as The Blue List of dealer inventory rose $102.9 million, to $1.46 billion.
In new-issue activity in the negotiated sector, Donaldson, Lufkin & Jenrette Securities Corp. tentatively priced $207 million non-callable Rhode Island Depositors Economic Protection Corp. special obligation refunding bonds.
The tentative offering included serial bonds priced to yield from 5.20% in 2000 to 5.60% in 2003.
A 2009 term was priced as 55/8s to yield 5.85%; a 2013 term was priced as 5 3/4s to yield 5.95%; a 2016 term, containing $50 million of the loan, was not formally re-offered to investors; a 2019 term, containing $53 million, was priced as 5 3/4s to yield 5.85%; a 2021 term was priced as 5 1/2s to yield 5.85%; and a 2022 term was priced as 5 3/4s to yield 6.05%.
Except for the insured bonds, the rest of the issue was rated Baal by Moody's Investors Service and A-minus by Standard & Poor's Corp. Financial Security Assurance insured the 2019 and 2021 maturities, which are rated triple-A by both ratings agencies.
Morgan Stanley & Co. priced and repriced $166 million Hillsborough County, Fla., revenue refunding bonds for the Tampa International Airport.
At the repricing, serial bond yields were raised by 10 basis points From 1994 through 1996 and by five basis points in 1997.
The final offering included serial $27 million non-callable Series A bonds priced to yield from 2.50% in 1993 to 4.55% in 1999. There also were $135 million Series B bonds priced to yield from 2.50% in 1993 to 5.55% in 2008.
A 2013 term, containing $31 million of the loan, was priced as 5 1/2s to yield 5.656% and a 2019 term, containing $49 million of the loan. was priced as 5.60s to yield 5.72%. Finally, there were $2.8 million non-callable Series C bonds priced to yield from 2.50% in 1993 to 4.55% in 1999.
The bonds are insured by the Financial Guaranty Insurance Co. and rated triple-A by Moody's, Standard & Poor's, and Fitch.
New York City Deal
New York City is slated to sell about $917 million of general obligation bonds today, with Bear, Stearns & Co. as senior manager and bookrunner.
The offering, which may change in size before the scheduled pricing, will feature about $205 million in Yen-denominated taxable debt sold to Japanese investors.
The so-called Samurai bond issue, the city's first, will total about $22.5 billion yen and will be sold through Nikko Securities International.
The city will pay an interest rate on the securities floating off the London Interbank Offering Rate, or LIBOR.
Darcy Bradbury, the city's deputy comptroller for finance, said the deal will likely save the city between 10 and 25 basis points, depending on market conditions. The city and Nikko were scheduled to price the issue late last night, in order to sell the deal in Japanese investors in Tokyo.
The remaining portion of the city bond issue will include about $508 million in fixed-rate general obligation debt; $48 million in fixed-rate tax-exempt capital appreciation bonds; $10.6 million in fixed-rate tax-exempt convertible capital appreciation bonds: $8.4 million in fixed-rate taxable capital appreciation bonds; and $130 million in taxable floating rate bonds.
Bradbury said work on the yen issue prevented the city from employing derivatives in the bond deal, as the city devoted the lion's share of its legal and financing expertise to complete the deal.
Standard & Poor's last week affirmed its A-minus rating with a negative outlook on the city's GO debt. Moody's yesterday affirmed its Baal rating.
Fax Your Bid to Brevard
In an effort to spur dealer interest in $18.2 million of solid waste revenue bonds offered for competitive sale today, Brevard County, Fla., will allow underwriters to submit their bids by facsimile transmission.
Thomas Holley, the county's financial adviser, said that to his knowledge it was the first such use of this technology in Florida.
"We are trying to take away the geographic limitations on bidding," Holley said yesterday. "In 1993, there is really no need for underwriters to be physically present [at the bidding] when there are other reliable media available."
But Holley said that the authority would not guarantee that a bid would be received by the 11 a.m. eastern daylight time deadline even if a dealer attempted transmission before that time.
To avoid any problems, he suggested that bidders fax their bids by at least 10:45 a.m. He said that the authority would have four facsimile machines ready to receive bids and would reserve the right to clarify illegible bids after the deadline.
The sale is the county's first since it held a referendum in March on a controversial COPs issue sold in 1989.
At that time voters narrowly affirmed backing a controversial government center in Viera funded by the COPs. The possibility that the county might leave the center and cease appropriation on the COPs had troubled many municipal market participants, who warned that a repudiation would effectively shut the county out of the credit markets.
Moody's rated the solid waste bonds A. On Friday, Standard & Poor's Corp. also rated the debt A.
Traders reported a light session yesterday with few blocks of bonds changing hands with any velocity.
In secondary dollar bond trading, prices were quoted down 1/4 point on average, traders said.
Chicago GO FGIC 5 5/8s of 2023 were quoted at 95 3/4-96 to yield 5.92%; New York State Dormitory Authority 5 1/2s of 2019 were quoted at 94 3/8-3/4 to yield 5.92%; and Florida Department of Transportation FGIC 5s of 2019 were quoted at 5.68% bid, 5.66% offered.
New York State Dorm 5 1/4s of 2015 were quoted at 5.94% bid, 5.89% offered and South Carolina PSA MBIA 5 1/2s of 2021 were quoted at 95 1/2-96 to yield 5.82.
In the short-term market, yields were unchanged to as much as 15 basis points higher on the day, traders said.
In late action, California bonds were quoted at 2.70% bid, 2.65% offered; Michigan notes were quoted at 2.35% bid, 2.30% offered; and New Jersey notes were quoted at 2.75% bid, 2.70% offered.