Friendly inflation data were the catalyst for municipal gains yesterday, and underwriters lowered yields on the majority of new deals.
The credit markets got off to a good start after the producer price index for finished goods inched up only 0.1% in October. However, when the volatile food and energy components were excluded, the index declined 0.1%,
Traders reported moderate dealer-to-dealer action throughout the session and bonds made gains from 1/4 to as much as 1/2 point on average.
In the debt futures market, the December municipal contract rose 18/32 to 95.08, while the MOB spread was calculated at negative 231.
The market's gains were made mostly on improved technicals as an ease in supply helped to boost investor demand for bonds in both the primary and secondary markets.
However, as yields move lower, many market players predict more issuers will queue up to enter the primary sector.
"With the uptick supply is threatening," one trader said. "The market is technically driven right now and any supply will prevent prices from doing substantially better."
Looking ahead to supply. The Bond Buyer calculated 30-day visible at $7.68 billion yesterday, while The Blue List of dealer inventory totaled $1.06 billion, down $4.2 million.
In negotiated new-issue activity yesterday, underwriters were able to lower yields on sizable deals from one to as much as eight basis points on average.
Leading negotiated action yesterday, Bank of America priced and repriced $408 million of California Public Works Board lease revenue bonds for the Regents of the University of California.
At the repricing, yields were lowered by five to eight basis points on serial bonds maturing from 1999 through 2009. The yield on the 2016 term was lowered by about three basis points, while the 2022 term bond yield was lowered by about five basis points.
A Bank of America underwriter said the deal was oversubscribed, even after the repricing, when some sizable orders were withdrawn because of higher prices.
The underwriter said final allotments were expected to be made today.
The final reoffering included serials priced to yield from 3% in 1993 to 6.375% in 2009. A 2016 term maturity, containing $118 million of the loan, was priced as 6.40s to yield 6.47%: and a 2022 term, containing $154 million of the loan, was priced as 6.60s to yield 6.75%.
Bonds in 1997 through 2016 are insured by the AMBAC Indemnity Corp. and are triple-A rated by Moody's Investors Service and Standard & Poor's Corp. The remaining maturities are not insured and are rated a conditional A1 by Moody's, a provisional A-minus by Standard & Poor's, and A-plus by Fitch Investors Service.
A syndicate led by Donaldson, Lufkin & Jenrette Securities Corp. priced, repriced, and then restructured $238 million of Piedmont Municipal Power Agency South Carolina electric revenue bonds.
At the repricing, yields were lowered by five basis points on serials from 2001 through 2009.
Term bond yields in 2022 and 2025 were lowered by about one basis point.
A 1994 serial maturity was eliminated, while a 2013 term was eliminated and terms in 2011 and 2014 were added.
The final reoffering included serials priced at par to yield from 4.20% in 1995 to 6.25% in 2009. A 2011 term was priced as 6.30s to yield 6.41%; a 2014 term was priced as 6.30s to yield 6.44%; a 2022 term, containing $89 million of the loan, was priced with a coupon of 6.30% to yield 6.49%; and a 2025 term was priced as 6 3/8s to yield 6.61%.
The bulk of the bonds are rated A by Moody's and A-minus by Standard & Poor's. Maturities from 2005 through 2022 are insured by the Municipal Bond Investors Assurance Corp. and rated triple-A by Moody's and Standard & Poor's.
Goldman, Sachs & Co. tentatively priced $187 million of Massachusetts Health and Educational Facilities Authority revenue bonds for Massachusetts General Hospital.
The offering included $116 million of Series F-1 fixed-rate bonds priced to yield from 3% in 1993 to 6.20% in 2005. A 2010 term was priced as 6 1/4s to yield 6.35%; and a 2013 term was priced as 6s to yield 6.44%, an original issue discount.
There also was a derivative portion of the loan, which included $35 million of Series F-2 periodic auction reset securities and $35 million of inverse floating-rate securities. The derivative securities were not formally reoffered to investors.
The bonds are insured by AMBAC and triple-A rated by Moody's and Standard & Poor's.
In light competitive action, $163 million of Alameda County, Calif., Transportation Authority limited tax sales tax revenue bonds were won by a group led by Kidder, Peabody & Co. with a true interest cost of 5.16%.
An unsold balance was unavailable late in the session.
Serial bonds were reoffered to investors at yields ranging from 3.40% in 1994 to 5.55% in 2001. Bonds in 1993 were not formally reoffered to investors.
The bonds are backed by the Financial Guaranty Insurance Co. and triple-A rated by Moody's, Standard & Poor's, and Fitch Investors Service.
Traders reported moderate activity with mostly dealer-to-dealer trading.
Some sizable blocks of bonds changed hands, market sources said, including about $11 million of Florida Department of Natural Resources insured 6 1/4s of 2013, which were said to have traded and then were reoffered around 6.26%.
Prices of Denver Airport Authority bonds gained more ground than other bonds.
Prices improved on news of a plan by Continental Airlines may emerge from bankruptcy with the backing of an Air Canada investor group, which could result in a boost of international traffic to the new Denver International Airport.
In late secondary trading, the AMT 6 3/4s of 2022 were quoted up 5/8 point on the day at 94 1/2-3/4 to yield 7.20%.
In secondary dollar bond trading, actively quoted bonds were unchanged to as much as 1/2 point higher.
In late trading, New York State Dormitory Authority 6 3/8s of 2008 were quoted at 6.63% bid, 6.60% offered; California 6 1/4s of 2019 were quoted at 6.50% bid, 6.48% offered; and New York City Water and Sewer 6 3/8 of 2022 were quoted at 96 1/4-5/8 to yield 6.666%.
In short-term note trading, yields were mostly unchanged on the day.