The municipal arena enjoyed full attendance by investors yesterday and underwriters raised new-issue prices, pulling the rest of the market higher.
Traders reported good two-way business flow between buyers and sellers as the market enjoyed the benefits of low inflation and a slow moving economy.
The market turned decidedly bullish at the end of last week after fears of a strong federal fiscal stimulus package were eradicated.
From a technical aspect, supply has been heavy, but the market has plowed through the pile of bonds thanks to strong demand from funds anticipating sizable redemptions and coupon payments in January. About $15 billion of cash is expected to be available because of bond redemptions and coupon and principal payments.
In addition, the first month of the year is also a time of historically low issuance, which spurs investors to look for bonds now.
"People are looking down the road to redemptions, there's low inflation with slow growth, and the market feels strong," said the head of a major Wall Street-based trading desk. "We're starting to feel the market surge because supply will decrease in January leaving demand as the dominant market force."
Most of the market concentrated on the primary sector, where some yields were lowered by as much as 25 basis points.
Secondary prices were quoted up 1/8 to 1/4 point.
In the debt futures market, the March municipal contract settled up 2/32 to 96.21. The March MOB spread widened, despite the gains, as Treasuries continued to outpace tax exempts. The spread was calculated at negative 241 compared to negative 236 Monday.
The primary sector took on over $1 billion of new negotiated bond deals yesterday, but underwriters were able to lower yields on nearly all of the issues.
A 19-member syndicate led by Bear, Stearns & Co. as senior manager priced and repriced $709 million of Triborough Bridge and Tunnel Authority general purpose revenue bonds.
At the repricing, the amount of the deal was boosted from the original $656 million.
Series Y serial bond yields were lowered by five to 10 basis points. Yields in 2012 were lowered by six basis points, yields in 2017 were lowered by four basis points, and yields in 2021 were lowered by three basis points. Finally, the yield on the Series Z 2018 term bond was lowered by three basis points.
Daniel L. Keating, senior managing director of Bear Stearns' municipal operation, estimated the issue was oversubscribed more than twice on a priority basis. He added tunnel authority enjoyed a $25.2 million cost savings.
Keating said the strength of the credit was the key to the deal's success.
"It's a double-A premium name," he said. "How many of these deals are around? Once we got the momentum going on the term bonds everybody came in -- we even saw some crossover buyers come in."
The final reoffering scale included $635 million noncallable Series Y bonds priced to yield from 4.70% in 1998 to 6% in 2008.
A 2012 term, containing $158 million of the loan, was priced as 6s to yield 6.14%; a 2017 term, containing $240 million of the loan, was priced as 5 1/2s to yield 6.16%; and a 2021 term, containing $79 million of the loan, was priced as 6 1/8s to yield 6.20%.
There also was $23 million Series Z bonds priced as 6s to yield 6.27% in 2018.
The managers said they expected the issue to be rated Aa by Moody's Investors Service and A-plus by Standard & Poor's Corp.
In other action, a Merrill Lynch & Co. group priced $150 million of revenue bonds for the Seattle, Washington Health Care Facilities at Swedish Medical Center.
The offering included serial bonds priced to yield from 2.75% in 1993 to 6.35% in 2009. A 2012 term was priced with a coupon of 6.30% to yield 6.40% and a 2022 term was priced as 6 3/8s to yield 6.47%.
The bonds are insured by the AMBAC Indemnity Corp. and are rated triple-A by both Moody's and Standard & Poor's.
A.G. Edwards & Sons priced and repriced $99 million of noncallable Ohio full faith and credit general obligation infrastructure improvement refunding bonds.
At the repricing, yields were lowered by five basis points in 1993 and by two basis points in 2003.
The final reoffering included noncallable serial bonds priced at par to yield from 2.55% in 1993 to 5.48% in 2003. There also were zero coupon bonds priced to yield 5.25% in 1999 and 5.35% in 2000.
The bonds are rated double-A by Moody's and Standard & Poor's.
Smith Barney, Harris Upham & Co. priced and repriced $72 million of New Mexico Educational Assistance Foundation student loan revenue bonds, subject to the alternative minimum tax.
Yields were lowered by five to 25 basis points at the repricing.
The final offering included $63 million of Series One-A bonds priced at par to yield from 3.25% in 1993 to 6.55% in 2005. There also was $9 million of Series One-B bonds priced at par to yield 6.85%.
The Series One-A bonds are rated triple-A by Moody's, while the Series One-B bonds are rated A by Moody's.
Secondary traders reported modest activity, but said business flow was healthy.
There were some bid-lists circulating, dominated by a $77 million list from an insurance company.
"Nobody wants to chase the rally right now," said one trader. "Call it ~end of the year trading,' Everybody is lightfooted, get in and get out. But we're seeing good buying and selling flow."
Reflecting the positive bias, The Blue List of dealer inventory fell $109 million to $1.65 billion as bonds are traded from the Street to permanent investors.
In secondary dollar bond trading, prices were quoted unchanged to up as much as 3/8 point and about 1/4 point on average, traders said.
In late action, Guam Power Authority 6.30s of 2022 were quoted at 97 3/4-98 to yield 6.47% on the bid-side; Houston Water and Sewer 6 3/8s of 2014 were quoted at 99 1/4-1/2 to yield 6.43%; and MBTA 6.10s of 2023 were quoted at 95 3/4-96 to yield 6.41%.
Goergia MEAG 6 3/8s of 2016 were quoted at 99-1/2 to yield 6.41%; North Carolina Catawba 6 1/4s of 2015 were quoted at 98 3/8-3/4 to yield 6.39%; and Denver Airport AMT 6 3/4s of 2022 were quoted at 95 1/8-3/8 to yield 7.14%.
In the short-term note sector, yields bucked the long-term trend and rose as much as 10 basis points in spots. Traders said the sector is correcting after a strong run-up over previous weeks.
In late secondary trading yesterday, notes of Los Angeles, New Jersey, and Pennsylvania were quoted at 2.45% bid, 2.40% offered.