Municipal cash prices ended a half-point higher yesterday, while in the primary market a $678 million New York State Medical Care Facilities Finance Agency deal was repriced at slightly lower yields.
"I think it's fairly aggressive pricing, but I think it recognizes the fact that there is a desire for New York paper out there on the part of investors, so it's priced accordingly," said Richard J. Moynihan, portfolio manager of the $3.5 billion Dreyfus Municipal Bond Fund. Moynihan, however, passed on the deal.
"I think [if] you're inundated with cash, you'd probably devote something to this, but I think when money isn't all that plentiful you pick your spots," he said.
A municipal analyst thought pricing was in line with the market. As an AMBAC-insured New York State issue, "I think it's right on the money," he said.
Richard E. Kolman, vice president and manager at Goldman, Sachs & Co., which served as senior manager on the deal, said the offering benefited from municipal marekt stability, higher Treasury prices, and from having a January settlement date.
"A January settlement definitely was a help in terms of those funds that are having cash come in on January 1," Kolman said. He cited trust department, retail, and property and casualty company interest in the serials and "a lot of bond fund types in the longer bonds."
At the repricing, most yields between 2009 and 2029 were lowered by two to four basis points, while the top yield of 7.05% in 2034 was left unchanged.
Said a source at another firm that participated in the deal: "We bought it, it has done real well -- a lot of retail participation in that one."
Also yesterday, Morgan Stanley & Co. priced $102 million Parish of West Feliciana, La., pollution control revenue refunding bonds for the Gulf States Utilities Co. project. The offering, rated Baa3 by Moody's Investors Service and BBB-minus by Standard & Poor's Corp., consisted of a single 2024 bullet maturity, priced at par to yield 8%. Underwriters said bonds were not repriced.
In light secondary market activity yesterday, yields on high-grade issues improved by five basis points, while dollar bond prices moved up 1/2 point. In debt futures, the March municipal contract closed up nearly a point to settle at 84 25/32. Yesterday's March MOB spread was negative 470, compared to negative 481 on Monday.
"There were lists out for the bid, not a great deal -- normal for a Tuesday -- and they all got big bids," a municipal trader said.
In the government market, the 30-year bond ended up 23/32 to yield 7.84%.
Brian S. Wesbury, chief economist at Griffin, Kubik, Stephens & Thompson Inc., said the long bond accounted for the lion's share of the government market's gains.
"The market in general is being driven by people making bets that interest rates are at or very, very close to a peak," he said. "And if that's the case, then lengthening duration is the thing to do."
Wesbury, however, is not in that camp.
"I basically think they are wrong just like they were in October of 1993," the economist said. "I think the yield curve has flattened prematurely here, and that we will see another spurt in interest rates in 1995."
On the economic front, the Labor Department yesterday reported that the producer price index increased 0.5% overall in November, while the core rate that excludes food and energy inched up 0.1%. The overall figure came in line with expectations, but the core rate registered less of an increase than economists had predicted. A jump in energy prices accounted for much of the 0.5% overall gain.
Also yesterday, the Commerce Department reported that retail sales rose 1.2% in November. The rise was more than double analysts' expectations and marked the sixth straight monthly gain.
"The bottom line on these numbers is that the economy looks very robust -- in fact, the economy is surging -- and inflation, at least for now, remains benign," Wesbury said.
The numbers mean that while the Federal Reserve is looking at "very, very strong" fourth-quarter growth, inflationary pressures remain confined to the manufacturing sector, and have not yet made their way into the consumer goods sector, he said.
"It makes their job very difficult, and there are, I guess, conflicting signals as to what the Fed should do," he said.
The Fed may decide to hold off and wait for the last 75-basis-point increase to take effect, or it may not, he said.
"So while I think it's very plausible to expect a Fed increase on December 20, it is not a foregone conclusion," Wesbury said. If the central bank does move at next week's Federal Open Market Committee meeting, it would likely be a 50-basis-point hike in both the federal funds rate and the discount rate, he said.
"At this point I don't think that 25 would make any difference," he said. If the Fed waits until its Jan. 31-Feb. 1 FOMC meeting, and the economic numbers remain strong as he believes they will, the market is likely to see a 75-basis-point increase, Wesbury said.
The 30-day visible supply of municipal bonds yesterday totaled $3.22 billion, down $102.9 million from Monday. That comprises $1.08 billion of competitive bonds, down $51.8 million from Monday, and $2.139 billion of negotiated bonds, down $51.2 million.
Standara & Poor's Corp.'s Blue List of Municipal bonds was up $101.4 million yesterday, to $1.484 billion.