Sellers pushed secondary prices down 1/4 point yesterday, while today's sale of $1 billion New York City bonds loomed ominously over the primary sector.
Municipals were dragged lower, in part, by the government marked yesterday, which continued to worry about the ramifications of a Clinton presidency.
But traders said the tax-exempt market's main ailment was supply pressure.
"It's hard to get your feet out of the mud," one trader said. "The market is apathetic and it's not easy to get rid of bonds, even though we're seeing bid-wanted flow."
High-grade prices were said to have declined 1/4 to 3/8 point by session's end.
In the debt futures market, the December municipal contract settled down 7/32 to 95.08.
The MOB spread narrowed to negative 257 from negative 263 Friday.
Supply pressure has consistently held the market down for nearly two months. Underwriters have been besieged by issuers, eager to grab still low interest rates.
The trend is not expected to change soon.
Total volume through Friday was $226.64 billion, up 35.3% from the year ago period's $167.47 billion, and just $2.16 billion shy of 1985's record of $228.8 billion.
The Bond Buyer's 30-day visible supply was calculated at $7.1 billion yesterday.
Reflecting growing dealer inventories, The Blue List rose $28 million yesterday to $1.63 billion.
Weighing particularly on the Street were bonds remaining from California's $1.3 billion offering sold last week.
The market was eyeing New York City's bond sale with some concern.
Early yesterday, Merrill Lynch & Co., senior manager of the California deal, reported an unsold balance of $148 million.
Market source said bonds were split up between members of the account and some bond saw their yields soar in trading.
About $48 million of the bonds in the MBIA-insured 2014 maturity were said to have traded to a permanent investor around 6.38% net.
The bonds were originally priced to yield 6.20%.
Late in the session, the 6s of 2015 were quoted at 6.47% bid, 6.45% offered. And the 6 1/4s of 2019 were quoted at 6.47% bid, 6.46% offered.
Turning to the New York sector, traders speculated early in the day that New York City bonds would be priced to yield 7% in 2018. But as the market deteriorated, traders said yields would likely be higher.
They estimated that yields could range between 7.05 and 7.10%.
In late secondary trading, outstanding New York City 7s of 2020 were quoted at 98 7/8-99 1/8, to yield approximately 7.092% on the bid-side. A block of 7s of 2016 were said to have traded around 7.08%.
Moody's Investors Service yesterday confirmed its Baal rating on city GOs.
In addition, the agency noted that the sale includes $201 million of FGIC-insured adjustable-rate bonds, enhanced by a liquidity facility provided by FGIC Securities Purchase Inc. The adjustable-rate bonds are expected to be rated Aaa/VMIG-1, the highest Moody's ratings.
The adjustable-rate bond offering is tentatively structured as $126 million of tax-exempt securities and $75 million of taxable securities, a city official said yesterday. This would mark the first time the city has sold taxable adjustable-rate bonds, the city official noted.
In addition, Prudential Securities is serving as senior manager for about $85 million of capital appreciation bonds, to be sold under the "NYC BONDS" program, tailored for retail investors. This leg of the deal includes the first taxable "NYC BONDS" offering.
Moody's noted that city plans to use new derivative products in the financing: index/fixed-rate bonds and a possible interest rate swap. The agency said that "although it is not expected that use of either product will have a material effect on the city's credit position, documents for the proposed swap are still being finalized and have not yet been reviewed by Moody's"
A city official said Merrill Lynch may be tapped as the swap provider.
Standard & Poor's rates the city's GOs A-minus.
Few deals hit the Street yesterday, but there were a few sizable issues.
First Boston Corp. priced and repriced $96 million of Harris County, Tex., Detention Facility certificates of obligation.
At the repricing, yields from 2006 through 2008 were eliminated and term maturities were created in 2009 and 2011.
Yields on serial bonds were raised 10 basis points from 1996 through 2005. The 2011 term yield was raised by five basis points.
The final reoffering included serials priced to yield from 3.50% in 1994 to 6.10% in 2005. A 2009 term was priced as 6.40s at par, a 2010 term was priced as 6s to yield 6.40%, and a 2011 term was priced as 6s to yield 6.35%.
The issue is rated Aa by Moody's and AA-plus by Standard & Poor's.
First Boston also priced $53 million of Michigan State Building Authority revenue bonds.
The offering included $15 million of Series A bonds priced at par to yield from 3% in 1993 to 4.50% in 1997.
There also were $38 million of Series IIA revenue bonds priced to yield from 5% in 1998 to 6% in 2005. A 2009 term was priced to yield 5.75% and a 2012 term was priced to yield 6.40%.
The bonds are rated A by Moody's AA-minus by Standard & Poor's and Fitch.
In follow-through business, PaineWebber Inc. freed $224 million of Arizona Transportation Board excise tax revenue bonds from syndicate restrictions.
Traders said there were few bonds around, but business was done at yields 10 basis points than original reoffering.
Lehman released $153 million of Missouri Health and Educational Facilities Authority revenue bonds from syndicate restrictions. Traders quoted a market at 6.43% bid, 6.40% offered.
Traders reported moderate bid-wanted flow throughout the session, but action died down in the afternoon.
In secondary dollar bond trading, prices were quoted 1/4 to 3/8 point lower on the day.
In late action, New York City Water and Sewer 6 3/8s of 2022 were quoted at 95 1/2-96, to yield approximately 6.726% on the bid side. Washington Public Power Supply System 6 1/2s of 2015 were quoted at 98 1/8-1/2, to yield 6.66%; Puerto Rico GO 6s of 2014 were quoted at 94 1/8-1/4, to yield 6.508%; and Illinois Toll and Highway 6 3/8s of 2015 were quoted at 97-3/4, to yield 6.632%.
Denver Airport Authority AMT 6 3/4s of 2022 were quoted at 93 3/4-95, to yield 7.26% and Florida Board of Education 6s of 2025 were quoted at 94 1/4-3/4 to yield 6.22%
Short-term note yields were unchanged to two basis points higher on the day traders said.
In late action, Los Angeles tax and revenue anticipation notes were quoted at 2.78% bid, 2.72 offered; New Jersey and Pennsylvania notes were quoted at 2.76% bid, 2.72% offered; and Texas Trans were quoted at 2.82% bid, 2.77 offered. California notes were quoted at 2.90% bid, 2.87% offered.
Connecticut GOs Confirmed
Moody's yesterday said it confirmed Connecticut's Aa in connection with the sale this week of $50 million of capital appreciation bonds.
In a statement, Moody's cited the state's action in fiscal 1992 to stabilize and restore recurring balance after suffering from the downturn in the economy.