Prices were narrowly mixed in light trading yesterday as the market braced for today's pricing of $1.6 billion of New Jersey refunding bonds.
Thanks to supply pressure, tax-exempts failed to follow the Treasury market for the third straight session yesterday.
Governments continued their slow march higher, while municipals sputtered, unable to participate in the gains.
The government market improved after economic data forecast a bleak future for new housing construction.
U.S. housing starts rose 1.5% in November to a seasonally adjusted annual rate of 1.242 million units, the highest level in eight months, but building permits, an indicator of future building activity, fell 1.5%.
Tax-exempt traders quoted the market mixed by session's end, with many bonds quoted down 1/4 point, and traders speculated prices would come under more downward pressure.
Reflecting fear of increasing supply, activity was held at bay yesterday ahead of the pricing New Jersey's refunding bond offering.
The deal is expected to be priced with long-term yields between 6.15% and 6.20%, traders said.
"People expect the deal to be priced to sell, and there is good reason to buy now and carry over the holidays ahead of January redemption cash," a trader said. "But people may not react to it until they see how it goes. It's a big deal, and if it is priced cheap but has a big Street float you could see some people get nervous."
In the debt futures market, the March municipal contract managed to settle in positive territory, Up 6/32, to 96.09. The MOB spread was unchanged at negative 250.
New issues have met with mixed results this week, but investor demand has been generally strong enough to encourage issuers to offer new debt.
Leading activity yesterday, Lehman Brothers as senior manager priced, repriced, and restructured $308 million New York Local Government Assistance Corp. bonds.
At the repricing, yields were lowered by 10 basis points in 1994; by five basis points in 1997 through 2002; and by one basis point in 2022. Maturities were added in 2008 and 2018, while a 2019 term was deleted.
Stanley Ciemniecki, managing director and manager of Lehman's national underwriting desk, said the issue was oversubscribed.
"We saw a good mix of retail and institutional buyers and the 5 1/2s were the coupon of choice," he added.
The final reoffering scale included serials priced to yield from 3.40% in 1994 to 6.20% in 2007. A 2008 serial was not formally reoffered to investors.
A 2012 term was priced as 6s to yield 6.28%; a 2018 term, containing $87 million of the loan, was priced as 6 1/4s to yield 6.45%; and a 2022 term, containing $79 million of the loan, was priced as 5 1/2s to yield 6.39%.
The bonds are rated A by Moody's Investors Service and Standard & Poor's Corp., and A-plus by Fitch Investors Service.
Goldman, Sachs & Co. priced $190 million of pollution control revenue bonds through the California Pollution Control Financing Authority for the Southern California Edison Co.
The offering, subject to the federal alternative minimum tax, was priced as 6.40s to yield 6.55% in 2024.
The bonds are Aa3 by Moody's and A-plus by Standard & Poor's.
Goldman also priced and repriced $85 million of Monroe County, Mich., pollution control revenue bonds for the Detroit Edison Co., subject to the AMT.
Reoffering yields were raised by about three basis points at the repricing.
The offering included $49 million of Monroe and Fermi plants project bonds and $36 million Fermi 2 power plant project bonds priced as 6.55s to yield 6.58% in 2024.
The offering is insured by the Municipal Bond Investors Assurance Corp. and rated triple-A by Moody's and Standard & Poor's.
In light competitive new-issue action, $138 million Fairfax County, Va., of unlimited tax public improvement refunding bonds was won by a First Boston Corp. group with a net interest cost of 5.484%.
The firm reported an unsold balance of approximately $32 million by session's end.
Serial bonds were priced to yield from 3.90% in 1995 to 6% in 2008.
The issue is rated triple-A by Moody's and Standard & Poor's.
In follow-through business, Merrill Lynch & Co. reported an unsold balance of $25 million from $72 million Mississippi general obligation capital improvement bonds late in the day.
First Boston reported an unsold balance of $6.62 million from $71 million Washoe County, Nev., School District limited tax GO refunding bonds.
Trading activity was listless, traders said, although there was some bid-wanted activity reported.
In secondary dollar bond trading, prices were quoted mostly unchanged.
New York State Energy Resources Development Authority AMT 6 3/8s of 2027 were quoted at 97 7/8-98 to yield 6.53%; Triborough Bridge and Tunnel Authority 6 1/8s of 2021 were quoted at 99-1/4 to yield 6.20%; and Metropolitan Pier Exposition Authority 61/2s of 2027 were quoted at 99 1/4-3/4 to yield 6.55%.
Massachusetts Bay Transit Authority 6.20s of 2016 were quoted at 98 7/8- 99 1/8 to yield 6.29%; Georgia MEAG 63/8s of 2016 were quoted at 99 3/4-100 to yield 6.39%, and Denver Airport Authority AMT 6 3/4s of 2022 were quoted at 94 3/4-95 1/4 to yield 6.76%.
In short-term note trading, yields were three basis points lower on the day.
In late action, Los Angeles Trans, New Jersey Trans, and Pennsylvania Tans were quoted at 2.37% bid, 2.30% offered.