The new issue pace this week and next will provide a glimpse of how fast corporate treasurers expect the economy to improve in 1994, one economist said yesterday.
"I think it's going to be a good week for the market," said John Lonski, senior economist at Moody's Investors Service, noting that he expects long-term borrowing costs to be at their lowest levels since mid-November.
The Treasury's 30-year bond closed up more that 3/4 points yesterday, gaining strength from favorable expectations regarding inflation.
"The Treasury market gained strength from an improved inflation outlook mostly because of yet another plunge by oil prices," Lonski said yesterday.
Lonski sees a 0.10% rise in Thursday's November producer price index and a 0.20% increase in Friday's November consumer price index.
"Both of those readings would reinforce a sense of optimism regarding the inflation outlook," he said.
Corporate treasurers witnessing a pickup in their industries are likely to see the next two weeks as a chance to get some financing done before borrowing costs rise, Lonski said.
"For those corporate finance officials that sense a substantial pickup in new orders and sales, the urge will be stronger to exploit this latest decline by bond yields," Lonski said.
Officials that have noted a marked pickup in new orders and sales are more apt to believe that bond yields did indeed hit bottom in mid-October, and are more likely to issue now to avoid possible higher borrowing costs, the economist said.
Another source who tracks the high-grade market said she reviewed her calendar yesterday morning and was surprised to see so much ahead for the next two weeks. The calendar included some industrial names that had been deferring deals, she said.
In other news, National Gypsum Co. yesterday announced plans to redeem $50 million principal amount of its $100 million senior unsecured notes. The redemption date for the 10% notes is Jan. 31, 1994, a company release says.
National Gypsum issued the notes to certain creditors as part of a reorganization. The company can redeem either all or some of the notes at any time at a price of par plus accrued and unpaid interest.
The country's second biggest manufacturer and distributor of gypsum wallboard and related products, National Gypsum emerged from bankruptcy in July.
Elsewhere, Petroleos de Venezuela S.A., the world's third largest oil company, will renew the U.S. commercial paper program it established last December, according to a release from Bankers Trust New York Corp. Bankers Trust Co. arranged the program, which has been increased to $400 million from $335 million.
The New York branches of Banque Nationale de Paris and Westdeutsche Landesbank Girozentrale have each issued direct-draw letters of credit for $200 million in support of the program.
In other news, Salomon Inc. has filed a registration statement with the Securities and Exchange Commission to issue up to $5 billion of debt, a company spokeswoman said yesterday. The filing was made Friday, she said.
In secondary trading, high-yield bond prices rose roughly 3/4 points over all, while Stone Container Corp. issues rose one to two points, buoyed by an impending Stone Consolidated Corp. offering. Spreads on high-grade issues were unchanged over all, though one trader noted tightening in spots.
Florida Power & Light issued $135 million of 7.05% first mortgage bonds due 2026. Noncallable for 10 years, the bonds were priced at 98.421 to yield 7.175% or 82 basis points more than comparable Treasuries. Moody's Investors Service rates the offering A2, while Standard & Poor's Corp. rates it A. Goldman, Sachs & Co. won competitive bidding to underwrite the offering.
Federal Farm Credit Bank sold $26 million of 4.575% medium-term notes due 1996 at par. Noncallable for a year, the notes were priced to yield 8.5 basis points more than comparable Treasuries. Smith Barney Shearson was sole manager.
Moody's Investors Service down-graded Woolworth Corp.'s long-term debt to A3 from A1. The company's commercial paper rating was lowered to Prime-2 from Prime-1.
"The rating actions are based on Moody's expectation that the company's operating performance will not be consistent with the A1 rating category because of its limited portfolio of proven merchandising concepts and difficulties in executing its merchandising strategies," Moody's said in its release.
"Changing consumer preferences, more aggressive competitors, and a fundamental decline in long-term demand in many of Woolworth's markets will make it difficult for Woolworth to re-establish the earnings, cash flow, and debt protection measurements," the release says.
