Municipals rose 1/4 point yesterday, despite inaction by the Fed. boosting the sale of $1 billion New YorkCity general obligation bonds, which fetched more aggressive prices than anticipated.
The tax-exempt market opened with a strong tone, bolstered by the report that U.S. housing starts plunged 17% in April to a seasonally adjusted annual rate of 1.115 million units.
The markets have been firm, in part due to hopes for an ease in monetary policy. But traders said that investor demand was strong throughout the session, particularly from retail and bond funds, even though the Fed failed to intervene.
The markets got another shot of confidence when the 30-year Treasury bond penetrated 7.80%, the high-end of a recent range. Tax-exempt cash prices were quoted up 1/4 point on average near the end of trading. Long discounts appeared to stall, while investors found results from bonds in the 15-year range, forcing yields down five basis points on the day.
In the debt futures market, the June municipal contract settled up 9/32, to 96.04. The June MOB spread widened to negative 174.
Several market sources noted that much of the Street had been betting on a slight price dip yesterday and soon found itself locked out of the improving market. "A lot of people think the market is a little overbought and they held off at the open because they were hoping for a slight downward move," one trader acknowledged. "Retail came roaring in, and the Street found itself shut out and looking for the next dip.
Some market players predicted that the bulls could push prices too high, and without a Fed ease, would have to suffer some downside correction.
Nevertheless, the tone was firm yesterday and demand was strong for bonds in both the primary and secondary sectors.
Leading new-issue activity, Goldman, Sachs & Co., senior manager of a 24-member syndicate, priced and repriced the New York City offering to raise prices.
Yields were lowered by four to 10 basis points on Series H bonds, five to 10 basis points for Series I bonds, and five basis points for zero coupon bonds.
The final reoffering scale included $750 million of Series H current interest bonds priced to yield from 5.35% in 1994 to 7.25 in 2022. There were $289 million of Series I current interest bonds priced to yield from 4.40% in 1993 to 6.30% in 1997 and from 6% in 2002 to 6.05% in 2004. Finally, about $87 million capital appreciation bonds were priced to yield from 5.60% in 1998 to 6% in 2001.
The Series H bonds are rated Baal by Moody's Investors Service and A-minus by Standard & Poor's Corp. The Series I bonds are rated Baal by Moody's and A-minus by Standard & Poor's except for maturities from 1988-2002, which are insured by Financial Security Assurance, the 2003 maturity, which is insured by AMBAC Indemnity Corp., and the 2004 maturity, which is insured by Municipal Bond Investors Assurance Corp. The insured bonds are triple-A rated by both Moody's Investors Service and Standard & Poor's Corp.
In other negotiated action, a syndicate led by Merrill Lynch & Co. priced $297 million of Metropolitan Atlanta Rapid Transit Authority sales tax refunding revenue bonds.
The issue included serial bonds priced tto yield from 3.50% in 1993 to 6.30% in 2007. A 2011 term maturity, containing $92 million of the loan, was priced as 6 1/4s to yield 6.35%, a 2013 term was priced as 6s but was not formally reoffered to investors, while a 2020 term, containing $72 million of the loan, was priced as 6 1/4s to yield 6.40%.
The bonds are AMBAC-insured and triple-A rated by both Moody's and Standard & Poor's.
Stone & Youngberg as senior manager priced and repriced $71 million of Contra Costa, Calif., Water District water revenue bonds.
Yields were lowered by two to as much as 25 basis points for some bonds.
The final reoffering scale included $36 million Series D bonds priced to yield from 3.50% in 1993 to 6.25% in 2007. A 2022 term was priced as 6 3/8s to yield 6.44%.
About $35 million Series E bonds priced to yield from 3% in 1992 to 6.20% in 2006. A 2012 term was priced 6 1/4s to yield 6.33% and a 2018 term was priced as 5 3/4s to yield 6.38%.
The bonds were insured by AMBAC and triple-A rated by both Moody's and Standard & Poor's.
Traders reported moderate activity in the secondary, but there were some larger blocks of bonds out for the bid, including $10 million West Virginia insured bonds, $14 million Texas Turnpike bonds, and $9.5 million Pittsburgh bonds. Traders also said that demand for Connecticut paper was strong.
In secondary dollar bond trading, prices were quoted up 1/4 point on average, but some bonds managed gains of only 1/8 point, while some rose 3/8.
In late trading, San Antonio Water Authority 6 1/2s of 2010 were quoted at 99 3/4-7/8 to yield 6.52%, California Public Works 6 5/8s of 2018 were quoted at 99 3/4-100 1/4 to yield 6.64%, and New York State Power Authority 6 1/4s of 2023 were quoted at 97 5/8-7/8 to yield of 6.42%. South Carolina PSA 6 5/8s of 2031 were quoted at 99 1/2-5/8 to yield 6.66%.
In the short-term note sector, traders reported brisk activity yesterday morning, and yields fell seven to 10 basis points on average before settling into a range as the day progressed. Outperforming the rest of the market, yields were driven down as much as 20 basis points on the offered side for Pennsylvania tax anticipation notes.
In late secondary trading, California Rans 3 1/4s were quoted at 3.70% bid, 3.65% offered; Los Angeles Trans 5s were quoted at 3.70% bid, 3.65% offered; Pennsylvania Tans 5 1/4s were quoted at 3.70% bid, 3.50% offered; and New York State Trans 3.65s were quoted at 3.44% bid, 3.42% offered.