Buyers snapped up nearly $2 billion of new deals yesterday, while prices drove higher for the second consecutive session.
Following the government market's lead, municipal bonds opened with gains of 1/8 to 1/4 point and continued higher in active trading.
By session's end, prices were quoted up 3/8 to 1/2 point and continued High-grade bond yields were down 10 to 12 basis points on the day, In the debt futures market, the December municipal contract settled 105.12, down from a high of 105.23. The MOB spread yesterday narrowed to negative 484 from negative 492 on Tuesday.
The 30-year Treasury bond hit a new record low of 5.84% by midmorning as investors moved out along the yield curve. The bond managed to hold the upper ground and was quoted at 5.86% near the end of New York trading.
Municipal traders reported an active secondary market, as a scarcity of new paper forced buyers into the second tier of the market. Reflecting the increased selling to permanent investors, The Blue List of dealer inventory fell $46.5 million, to $982 million, the lowest level since Feb. 25, 1993, when it totaled $925 million.
"People look at these levels and they worry about a correction, but municipals are still cheap and there seems to be good interest from the funds," said one trader. "The market certainly has a good tone and the new deals are blowing out.
Yesterday's gains drove the Municipal Bond Index up to reach a record high of 105.20. That pushed the average yield to par call of the 40 bonds used in the index to a record low of 5.43%.
The new issue calendars have lightened up considerably in recent weeks and buyers have been eager for any new paper that hits the market. Looking ahead to supply, The Bond Buyer calculated 30-day visible supply at $3.63 billion, so market players concluded that demand should remain strong unless the low rates spark an issuer rush to the primary.
Dealers bid aggressively in the competitive sector, vying for $209 million Maryland Department of Transportation refunding revenue bonds.
There were four bidders for the deal, but Goldman, Sachs & Co. took the bonds down with a true interest cost of 4.11158%. Morgan Stanley & Co. had the cover bid with a TIC of 4.1634%.
Goldman reoffered the bonds, which historically have been priced at high double A1 levels, at yields which were 10 basis points through yesterday's triple-a levels.
The firm reported all bonds sold by early afternoon. Serial bonds were reoffered to investors at yields ranging from 3.05% in 1995 to 4.55% in 2005. The issue is rated double-A by Moody's Investors Service, Standard & Poor's Corp., and Fitch Investors Service.
WPPSS Deal
Demand was strong enough for underwriters to raise prices on much of the new deals that were priced yesterday.
Dominating activity, First Boston Corp. priced and repriced $692 million Washington Public Power Supply system refunding revenue bonds for the Bonneville Nuclear Project 1 and 3.
At the repricing, yields on Project 1 bonds were lowered by five basis points in 1996, 1997, and from 2002 through 2005. Yields on Project 3 bonds were lowered by five basis points in 1996 and 1997, and from 2002 through 201 0, except in 2005 and 2006, where yields were lowered by 10 basis points. And Project 3 term bond yields were lowered by eight basis points. Finally, capital appreciation bond yields were lowered by five basis points.
The final offering included $168 million Project 1 bonds priced to yield from 2.70% in 1994 to 5.40% in 2010. A 2012 term, containing $67 million of the loan, was not formally reoffered to investors and a 2015 term was priced as 53/8s to yield 5.52%.
A First Boston manager said the present value savings from the issue was in excess of $35 million.
There also was $524 million of Project 3 bonds priced to yield from 2.70% in 1994 to 5.40% in 2010. A 2012 term, containing $106 million, was not formally reoffered to investors. A 2015 term, containing $189 million, was priced as 53/8s to yield 5.52% and a 2018 term was priced as 51/2s to yield 5.537%.
There also were non-callable zero coupon bonds priced to yield from 5.70% in 2013 to 5.75% in 2018.
The not reoffered bonds were priced as derivative products. Bonds from 2004 through 2008 are non-callable.
The bonds are rated double-A by Moody's, Standard & Poor's. and Fitch, except for a Project 3 2008 maturity. Those bonds are insured by MBIA Corp. and also rated triple-A.
Elsewhere, Bear, Stearns & Co. priced and repriced $248 million Connecticut special tax obligation refunding bonds for transportation infrastructure purposes. Yields were lowered from five to as much as 15 basis points throughout the scale. The final scale was priced to yield from 2.50% in 1994 to 4.75% in 2006.
The bonds are rated A1 by Moody's and AA-minus by Standard & Poor's and Fitch.
Prudential Securities Inc. priced $140 million Orlando Florida Utilities Commission water and electric revenue bonds.
The offering included serial bonds priced to yield from 5.175% to 5.225% in 2013. A 2020 term, containing $75 million, was priced as 51/as to yield 5.30% and a 2023 term was priced as 5s to yield 5.270%.
The bonds are rated Aa1 by Moody's, AA by Standard & Poor's, AA-plus by Fitch, and AAA by Duff & Phelps & Co.
Lehman Brothers priced $117 million non-callable Wisconsin transportation Prefunding revenue bonds.
Serial bonds were priced to yield from 2.50% in 1994 to 4.95% in 2010. A 2012 term was priced as 4 3/4s to yield 5.029%.
The issue is rated A1 by Moody's and the managers said they expected Standard & Poor's to rate the bonds AA-minus.
Boston Sells GOs
Boston sold $50 million of general obligation bonds yesterday in its first competitive offering since 1979.
City finance officials decided on July 15 to sell this issue competitively because of the city's improved fiscal strength and because of questions surrounding the need to sell bonds through negotiated sale. Such questions are being asked by issuers around the country this year as a number of scandals have erupted surrounding negotiated sales around the country.
The bonds were won by a group managed by Merrill Lynch with a TIC of 4.75%. The bonds were reoffered to investors at yields from 2.60% in 1994 to 5% in 2013.
The issue was insured by Financial Securities Assurance Co. and triple-A rated by Moody's and Standard & Poor's.
"We were thrilled with the interest rate we were able to get for the city with this sale," said city treasurer Lee F. Jackson. "There's no question the deal was timed just right and the competitive pricing was the way to go."
Jackson said this was the first new-money sale the city has done in over two years. He said he was "very encouraged," by the fact that there were nine different bidding groups on the sale.
Prudential Securities Inc. provided the cover bid with a TIC of 4.823%. Other bids included State Street Bank, third with a TIC of 4.84%, and Lazard Freres & Co., with a TIC of 4.85%.
In a release, Boston's financial adviser, J. Chester Johnson, chairman of Government Finance Associates, said, "the low interest rates received clearly demonstrate the city's competitive advantage and the tremendous investor demand for Boston securities."
Jackson is scheduled to resign from the post at the end of this month to become a senior executive at the Bank for European Reconstruction and Development in London. He was nominated for the post by President Bill Clinton earlier this month. During his tenure as treasurer, the city's GO bond rating has been upgraded five consecutive times. It is currently rated single-A by all three ratings agencies.
Secondary Markets
Traders reported brisk activity throughout the session, with numerous blocks in the $5 million to $10 million range, many of which were New York State Power Authority bonds.
In secondary dollar bond trading, prices were quoted up to as much as 5/8 point, traders said.
In late action, Jacksonville Electric 5 1/4s of 2021 were quoted at 5.31% bid, 5.29% offered; Florida State Board of Education 5.20s of 2019 were quoted at 983/8-bid to yield 5.28%; and New York State Power Authority 5 1/4s of 2018 were quoted at 100 3/8-bid to yield 5.20% to the par call.
In the short-term note sector, yields were unchanged to as much as 15 basis points higher, traders said.
In late action, California Rans were quoted at 2.70% bid, 2.60% offered; Los Angeles Trans were quoted at 2.70% Abid, 2.65% offered; and New York State notes were quoted at 2.60% Abid, 2.55% offered.
