Tax-free prices significantly lagged a jump in Treasury bonds yesterday, but the move higher still managed to ease concerns that the market was due for a big fall.
A combination of favorable economic data and increased investor demand from massive July 1 bond calls had pushed yields close to recent record lows over the last six weeks.
Nervous selling dominated activity Monday and Tuesday as the market eased off its highs, and many traders worried that a major correction lay ahead.
The Treasury market opened higher as overnight gains spilled into the New York session, and municipals followed suit. Much of the bid-wanted product in the municipal secondary market was said to have been scooped up by the Street, and the tone improved.
"Bids for bonds are strong and we seem to be back on track," said a trader. "The August refunding announcement is down the road, but there's not much out there to stop us until then."
U.S. industrial production fell 0.3% in June, breaking a string of four straight monthly increases, while capacity utilization fell 0.4-point to 78.5% in June, also ending four straight monthly advances.
But the market barely noticed, and tax-exempt prices settled into a range during the afternoon.
By session's end some bonds managed gains of 1/8 to 1/4 point. In the debt futures market, the September municipal contract settled up 13/32 to 97.28, but the MOB spread widened to negative 149 from negative 144 as governments outpaced municipals.
But as market players retired, an air of uncertainty remained.
"There are a lot of mixed signals and apathy out there," a trader said late in the session. "But it appears we had a marginal technical correction and that was the extent of the damage - although if you lost five basis points at these levels, you're talking about some big money."
In light new-issue activity, Lehman Brothers repriced $167 million of noncallable Oklahoma Municipal Power Authority power supply system revenue refunding bonds originally priced Tuesday.
The offering included serial bonds priced to yield 4.65% in 1997 to 5.95% in 2007. A 2012 term was priced as 5 7/8S to yield 6.062%, a 2015 term was priced 5 7/8s of 6.08%, and a 2024 term, containing $62 million of the loan, was priced 5 3/4 s to yield 6.125%.
Serial bonds in 2008 and 2009 were not formally reoffered.
The issue is insured by the Municipal Bond Investors Assurance Corp., and rated triple-A by Moody's Investors Service and Standard & Poor's Corp.
In follow-through business, Smith Barney, Harris Upham & Co. freed $192 million of Tucson Unified School District No. 1 school improvement bonds from syndicate restrictions.
In late secondary trading, the FGIC-insured 6.10s of 2012 were trading right around the coupon. They were originally priced to yield 6.15%.
Secondary trading was light as supply remained thin. The Blue List of dealer inventory stood at $1.1 billion.
In secondary dollar bond trading, Michigan Trunk 5 3/4 of 2012 were quoted at 95 1/2-3/4 to yield 6.14%, Oklahoma Turnpike Authority 6 1/8s of 2020 were quoted at 98 3/4-99 1/4 to yield 6.22%, and New York City Water Authority AMBAC 6.20s of 2021 were quoted at 99 7/8-100 to yield 6.20%. Texas Municipal Power Authority MBIA 5 3/4s of 2012 were quoted at 95 1/8-1/4 to yield 6.17% and Salt River 5 1/2s of 2025 were quoted at 90 1/4-lock to yield 6.19%.
In short-term note trading, yields were mostly unchanged on the day.
In late action, Los Angeles tax and revenue anticipation notes were quoted at 3.07% bid, 3.05% offered, New York City notes were quoted at 2.95% bid, 2.90% offered, and San Berndardino paper was quoted at 3.15% bid, 3.10% offered. New York State Trans were quoted at 3.05% bid, 3% offered.
First Boston priced $56 million of various Nevada gas and water bonds.
The offering included $45 million of Washoe County variable-rate demand refunding revenue bonds as 6 1/4s at par in 2014, $10 million of Humboldt County refunding bonds priced as 6.30s at par in 2022, and $1 million of Humboldt County refunding revenue bonds, priced as 6.30s at par in 2012.
The issue is AMBAC-insured and triple-A rated by Moody's and Standard & Poor's.
A.G. Edwards & Sons priced $50 million of Southeast Missouri Correctional Facility lease revenue bonds.
Serial bonds were priced to yield from 4.90% in 1998 to 5.75% in 2005. A 2008 term was priced to yield 6%, a 2011 term was priced to yield 6.088%, and a 2016 term was priced to yield 6.149%.
The bonds are double-A rated by Moody's, Standard & Poor's, and Fitch.