A flurry of new deals, the first of an expected total of $6.7 billion this week, was priced yesterday with mixed results.
Secondary prices met the same fate as the market waited for today's competitive sale of $1.3 billion of California general obligation bonds.
Municipals opened with a firmer tone, thanks to modest gains posted in the Treasury market, which is hanging onto hopes for an ease in monetary policy by the Federal Reserve Board.
But activity turned dull as market players moved to the sidelines, content to let the Treasury market and new deals dictate price movement.
Some dollar bonds weakened slightly at the end of the day in sympathy with the Treasury market.
The December municipal contract settled down 6/32 to 95.20. The MOB spread widened to negative 254 from negative 251 Monday.
Although municipal market activity became muted, the Street developed a keen interest in the California bond deal, the largest sale planned for the week.
Expectations about the sale were mixed, as the state sells debt amidst well publicized fiscal woes.
Traders noted that if the deal stumbles, secondary prices would likely cheapen in sympathy.
"We're in a cycle where we sell Monday and Tuesday morning, buy it back after the deals are done, and then get better at the end of the week," a trader said. "If Thursday rolls around and you have deals that are not done you're in trouble. People are nervous about California falling into that scenario."
Market players speculated the new California long bonds could yield as low as 6.30% or as high as 6.40%.
There were no actively traded California GOs in the secondary, but market sources said the state's 6 1/4s of 2012 could be found quoted at 98 3/4-99 1/4, to yield approximately 6.36%.
The issue is rated Aa by Moody's, A-plus by Standard & Poor's, and AA by Fitch Investors Service.
Another potential impact on prices could come from the economic sector.
The markets will be watching the results of the September producer price and retail sales reports. Expectations are for friendly data, but any signs of economic strength will be a big disappointment.
New issues were met with a mixed response yesterday as buyers remained in control, thanks to a heavy 30-day visible supply. The Bond Buyer calculated expected sales at $8.98 billion yesterday.
Leading competitive action, $136 million of Ohio State Public Facilities Commission higher education capital facilities revenue bonds were won by a bidding syndicate led by Morgan Stanley & Co.
The bonds were won with a net interest cost of 5.43050%. The firm reported an unsold balance of $44.3 million late in the session.
First Chicago Capital Markets had the cover bid with an NIC of 5.4730%.
The offering included serial bonds only, priced to yield from 3% in 1993 to 6.05% in 2007. The issue is rated A by Moody's Investors Service.
Negotiated New issues
Painewebber Inc. as senior manager priced $220 million of transportation excise tax revenue bonds for the Arizona Board of Transportation's Maricopa County regional area road fund.
Yields were lowered by five basis points from 1995 through 1997 and the deal was made noncallable.
The offering included $191 million of Series A serial bonds priced to yield from 3.60% in 1994 to 5.95% in 2005.
Series B serial bonds, containing the remaining $31 million of the loan, were also priced to yield from 3.60% in 1994 to 5.95% in 2005.
The issue is insured by the AMBAC Indemnity Corp. and rated triple-A by Moody's and Standard & Poor's Corp.
Another syndicate led by Painewebber as senior manager priced and repriced $118 million of hospital revenue bonds for the University of Colorado Hospital Authority.
The 1995 yield was lowered by five basis points, while yields were raised by five basis points in 2003 and 2004. The 2012 yield was raised by four basis points, while the 2022 yield was raised by about two basis points.
The final offering included serial bonds priced to yield from 4.15% in 1995 to 6% in 2004. A 2008 term was priced as 6 1/4s, but were not formally reoffered to investors.
A 2012 term was priced as 6 1/4s to yield 6.40% and a 2022 term, containing $66 million of the loan, was priced as 6.40s to yield 6.47%.
The issue is insured by AMBAC and rated triple-A by Moody's and Standard & Poor's.
Smith Barney, Harris Upham & Co. priced and repriced $95 million of Arkansas Student Loan Authority student loan revenue bonds.
At the repricing, Series A-1 yields were raised by five to 10 basis points in 1998 and from 2000 to 2003. The Series A-2 2000 yield was raised by about 12 basis points.
The final reoffering, subject to the federal alternative minimum tax, included $86 million of Series 1992 A-1 senior bonds priced at par to yield from 5.25% in 1997 to 6.15% in 2003. A 2006 term was priced as 6.40s, to yield 6.50%.
There also was $9 million of 1992 A-2 subordinate bonds priced at par to yield 6.125% in 2000 and 6.75% in 2006.
The senior bonds are rated Aa by Moody's, while the subordinated bonds are rated A by Moody's.
A.G. Edwards & Sons as senior manager priced $75 million of Missouri Housing Development Commission single-family mortgage revenue bonds, supported by the GNMA mortgage-backed securities program.
An officer at the firm said a repricing was not anticipated.
The offering included serials priced at par to yield from 3.65% in 1994 to 6.15% in 2007. A 2015 supersinker, containing $21 million of the loan, was priced at par to yield 5.45%. A 2018 term was priced at par to yield 6.30% and a 2024 term was priced at par to yield 6.40%.
The issue is GNMA collateralized and rated triple-A by Standard & Poor's.
Seasongood & Mayer as sole manager tentatively priced $72 million of University of Cincinnati general receipts bonds.
The offering included $22 million of Series O bonds priced to yield from 2.80% in 1993 to 6% in 2006 and 6.272% in 2012.
There was $10 million of Series R1 bonds priced to yield from 2.80% in 1993 to 6% in 2006. There was $6 million of Series R2 bonds priced to yield from 2.80% in 1993 to 5.90% in 2005 and 6.25% in 2009. Finally, $18 million of Series R4 bonds was priced to yield from 2.80% in 1993 to 5.90% in 2005 and 6.25% in 2009.
The issue is rated A 1 by Moody's and AA-minus by Standard & Poor's.
Activity was light, but traders reported some bid-wanted lists of moderate size circulating in the Street and there were some sizable blocks out for the bid.
Some of the bonds offered included $10 million of Connecticut 5.90s of 2000 and $10 million of New Jersey Turnpike 5.70s of 2001.
In secondary dollar bond trading, prices were unchanged to as much as 1/4 point weaker in spots, traders said.
In late trading, Los Angeles Department of Water and Power 6s of 2032 were quoted at 94 3/4-95 1/4 to yield approximately 6.364% on the bid-side; and Washington Public Power Supply System 6 1/2s of 2015 were quoted at 98 5/8-7/8 to yield 6.617%.
Yields of short-term municipal notes were unchanged to five basis points higher on the day, traders said.