Municipal prices jumped 1/4 to 1/2 point yesterday as an early boost. in
the Government market helped
But even as the long Treasury bond drifted lower later in the day, market concern about the weak economy and the light visible supply, helped the municipal market maintain its gains.
Municipal participants said the overwhelming sentiment to the market yesterday was relief following the conclusion of the prolonged and closely watched presidential campaign.
On Tuesday, Arkansas Gov. Bill Clinton defeated President George Bush and businessman H. Ross Perot in the presidential election.
"It seems like we've been analyzing this election for about the last two years," said a trader. "I think everyone is catching their breath today."
Since Clinton began to pull away from President Bush in the polls, municipal participants have been theorizing about how a Democratically controlled White House would change the municipal landscape.
But according to traders and analysts alike, the market has accepted that the changes to be made in the new administration could be a shot in the arm for municipals.
In a written overview of the municipal market, James J. Cooner, senior vice president of The Bank of New York, said that the Clinton presidency could be a good thing for municipal bonds.
"First and foremost, taxes are going up for wealthier individuals," Cooner said. "Tax-free income received from municipal bonds is worth more in a rising tax environment."
Cooner said he will be advising his clients not to panic about the incoming administration and to continue to invest in high-quality, intermediate-term bonds.
"Returns in the intermediate range are only slightly less than returns from long-term bonds. However, the risk from increasing interest rates is lower for intermediate-term bonds," he added.
According to several municipal market participants, investors initially had overreacted to the perceived tax threat of a Clinton presidency and sold off municipal holdings in recent weeks.
But through most of this week, prices have headed higher because of the underlying weakness in the economy, lighter bond supply, and diminished concerns about Clinton's fiscal policies.
Nevertheless, George Friedlander, a managing director at Smith Barney, Harris Upham & Co., said, "We are still going to be in a period of volatility. It's going to be crucial for the new administration to choose their appointments carefully."
He pointed to the Secretary of the Treasury and the posts of chairman of the Council of Economic Advisors and Budget Director as important and key choices for the new administration.
Friedlander said there may also be a change at the top at the Federal Reserve. He pointed out, though, that current chairman Alan Greenspan would have to relinquish the post.
Friedlander said for the next few weeks, Clinton will be sending out various "trial balloons" to get the country's opinion on what direction the administration should take.
"Clinton has an ambitious plan for infrastructure and health care," Friedlander said. "But he also has a $4 trillion budget deficit staring him in the face."
"There are other concerns to the market now, though." he added. "Heavy Government supply next week and Friday's employment numbers will have a more profound effect on the market in the short term."
Friedlander said if the Treasury market could improve "a little more," then some of the large refunding issues that have been on the municipal calendar for the last month could come to market.
Included are issues of $450 million Massachusetts Water Resource Authority bonds; $308 million Trinity River Authority, Tex., bonds; and $245 million Austin, Tex., bonds.
Friday's Jobs Data
One trader said municipal prices should remain in a narrow range until after Friday's release of the October employment figures.
In September, non-farm payrolls fell 57,000 and the unemployment rate was reported at 7.5%.
Several traders said another fall in the payrolls figure could be enough of an impetus for the Federal Reserve to cut the fed funds and discount rate again.
"Now that all this election hoopla is over, we can refocus on the real state of the economy," said a trader. "There are still a lot of problems in the economy that need to be addressed. "
Market participants shrugged off some positive economic news and focused on Friday's employment report.
Yesterday, the Commerce Department reported that September factory orders rose 1.1 % when the market had been expecting only a 0.1% increase.
Although the Treasury market slipped on this news, a stronger-than-expected late-October car sales release, and upcoming supply, the municipal market held its ground and ended the day on an upnote.
Municipal supply for the next 30 days, which played such a damaging role in the price decline two weeks ago, slipped to $6.19 billion. Dealer supply, as charted by The Blue List, fell by $245 million, to $1.48 billion.
"This week is just a lost cause, said a trading desk head. Investors seem interested in remaining on the sidelines until after the October jobs report."
New issuance Slows
In light new issuance, the largest deal brought to market yesterday was an issue of $61 million Illinois Health Facilities Authority revenue refunding bonds was priced and repriced by senior manager Bear Stearns & Co.
The offering contained serial bonds priced to yield from 4.40% in 1994 to 6.60% in 2002.
There were also two term bonds, which saw their yields lowered by two basis points after the repricing. The first term matures in 2007 and was priced as 7s to yield 7.10% and the second term, due in 2015, was priced as 7s to yield 7.18%.
The loan was rated A by Moody's Investor's Service and A-minus by Standard & Poor's Corp.
At the repricing, yields were raised 10 basis points on the 1996 and 1997 serial maturities and five basis points on the 1998 serial maturity.
An issue of $60 million Solid Waste Authority of Palm Beach Co., Fla., refunding and improvement revenue bonds was priced and repriced by Smith Barney.
The MBIA-insured, triple-A rated loan was priced to include serial bonds priced to yield from 3.90% in 1995 to 6.275% in 2008.
At repricing, yields were lowered from three to 10 basis points.
Traders reported a quick start to yesterday's activity with prices rising about 3/4 point before noon.
But once the afternoon session began, prices fell off their lows.
The MOB spread shrank to a negative 256, and the December municipal futures contract was up 3/32, to 94.10.
In secondary dollar bond trading, prices were up between 1/4 and 1/2 point.
In late action, New York City GO Series C 63/4s of 2018 were quoted at 7.05% bid, 7.00% offered; California GO 6s of 2015 were quoted at 6.56% bid, 6.52% offered; and New York City Water and Sewer 63/8s of 2022 were quoted at 95 1/4-3/8 to yield 6.74%.
Washington Public Power Supply System 61/2s of 2015 were quoted at 97 3/4-8 1/4 to yield 6.69%; Puerto Rico GO 6s of 2014 were quoted at 92 1/2-3 to yield 6.65%; and Denver Airport AMT 6 3/4s of 2022 were quoted at 93 1/4-4 to yield 7.30%.
In the short-term note sector, traders said yields dipped between two and four basis points on average.
In late action, notes of Los Angeles, New Jersey, Texas, and Wisconsin were quoted at 2.77% bid, 2.72% offered. California Rans were quoted at 2.93% bid, 2.90% offered.