A poor Treasury auction pelted municipals overall, while Denver International Airport bonds suffered even sharper losses following a Standard & Poor's Corp. downgrade to junk.
"I'd say Denver Airports are [up] 35 basis points, and the rest of the market is [up] 10 to 15," one trader said.
While judging the overall market down 1 to 1 1/4 points, the trader said exact losses where difficult to pinpoint. "I don't think that there's been enough trading to even say what [the market] down," he said.
With the inflation news coming from the producer price index today and from the consumer price index tomorrow municipal participants saw yesterday's big drop by governments as an opportunity "to do nothing," the trader said.
A municipal analyst pegged dollar bonds down 5/8 points overall and more in spots. They had been up 1/8 point at noon, but suffered a 3/4 point loss in the afternoon, he said. Yields on high-grade issues rose five basis points. Activity was light to moderate.
Yesterday's June MOB spread was negative 414, compared to negative 418 on Tuesday. In the debt futures market, the June municipal contract was down nearly a point to 89 1/8.
The analyst cited by Treasury market's poor 10-year auction as the main reason for the decline.
"The 10-year auction results came out much worse than expected," another trader added.
As for Denver Airport, Standard & Poor's Corp. cut the rating on about $2.7 billion of outstanding unenhanced debt to BB from BBB, citing "ongoing difficulties with the baggage system that has made it impossible to predict when the airport will be able to open."
The rating was taken off CreditWatch, where Standard & Poor's placed it on March 7 for a possible downgrade.
A trader yesterday said he saw some 7 1/4% Denver Air bonds of 2023 trade at a 7.80% net, while they were offered at 7.40% less a concession the previous day.
Despite the downgrade, a report released yesterday from John Nuveen & Co.'s research department finds value in the credit:
"In spite of the delay in opening the Denver International Airport, and the impact that delays have had on the rating of DIAs bonds, Nuveen's Research Department remains convinced of the fundamental soundness of the credit," the report said.
"The virtually completed facility is addressing the complexities of the baggage-handling system - a system that is operational in other airports around the world. Otherwise, the size strength and diversity of the Denver airline market continues to bode well for the eventual success of the DIA project," the report said.
New Issues
In competitive new issues yesterday, the Bank of America won $308 million of University of California revenue bonds with a true interest cost of 6.4073%.
Serial bonds were reoffered to investors at yields ranging from 5% in 1998 to 6.35% in 2015. A 2019 term, containing $61 million, was priced to yield 6.375%. The issue contained a 2024 term of $100 million.
A source close to the offering said a $86.5 million balance remained by 4 p.m., Eastern Daylight Time. Demand came largely from intermediate bond funds, individual investors and bank trust departments.
While yesterday's market conditions were difficult, "I guess in the scheme of things this was already priced before the market really started to go down," the source said.
In negotiated action yesterday, a Lazard Freres & Co. group priced $176.7 million Los Angeles County Public Works Financing Authority revenue bonds.
The offering contained serial bonds priced to yield from 3.65% in 1995 to 6.22% in 2010. A 2015 term, containing $63.8 million, was priced as 6s to yield a 6.40%.
The serial bonds are noncallable until Oct. 1, 2004. The term bonds are callable beginning Oct. 1, 2004, at 102, and declining to par in 2006.
"Right after the county gave us the verbal award, the market went down a point and a quarter," said Russell L. Goings 3d, a Lazard Freres vice president. "Although the market was going away from us during the order period, we were still able to tighten the pricing levels. That resulted in a lower borrowing cost to the county."
The deal marks the first financing on behalf of the recently created Los Angeles County Regional Park and Open Space District, a benefit assessment district containing 2.2 million parcels whose boundaries encompass the entire county.
The revenue bonds were rated double-A by both Standard & Poor's and Moody's Investors Service.
Elsewhere, Columbus, Ohio refunded $51.6 million of adjustable-rate sewerage system revenue bonds in a deal that marks the first time a local government provided its own liquidity support in place of a letter of credit.
The yield on the refunding bonds was set at 2.95%, according to Brad Sprague, a vice president at A.G. Edward & Sons, the sole underwriter for the issue.
He said that yield is five basis points less than the yield on an outstanding issue of the city's variable rate bonds that were were repriced yesterday and are backed a letter of credit from Sanwa Bank. The older bond issue will remain outstanding until June 2.
Sprague said investors responded favorably to the unique deal. "There is absolutely no interest rate penalty associated with this deal," he said.
Columbus is using its investment portfolio to provide liquidity for the refunded bonds. By doing so, city officials expect a $2.74 million savings over the 17-year life of the issue.
Columbus earned a liquidity support ratings of A-1-plus from Standard & Poor's and VMIG-1 from Moody's. The bonds themselves were rated AA-minus by Standard & Poor's and A1 by Moody's.
Michelle Kelly-Underwood, executive assistant to Columbus' auditor, said the rate on the refunded bonds is "pretty aggressive" and that the city is pleased with the results.
"There was no resistance to the structure of the deal," she added. The remarketing agent for the deal is BT Securities Corp.
SEC to Watch Muni Junk
Also yesterday, Securities and Exchange Commissioner Richard Y. Roberts said that as part of its initiatives in the high-yield municipal bond market, the agency will "be scrutinizing mutual fund operations to ensure that liquidity and valuation requirements of the Investment Company Act, particularly insofar as municipal securities are concerned, are adhered to."
Financial institutions that sell high-yield bonds to mutual funds, unless agreed otherwise, should be ready to provide adequate pricing information for the security, he said.
