New York State issuers marched unscathed through the primary sector yesterday despite credit concerns, while technical pressure pushed secondary prices down 1/8 to 1/4 point.
New York State's announcement two weeks ago that it faced a more dire budget deficit than expected hurt the standing of the state's appropriation bonds, including those of the Metropolitan Transit Authority. As a result, market players speculated last week, the state's $1 billion in deals could face difficulties this week.
Technical pressure and credit concerns pushed New York yields about 15 basis points higher on average, traders estimated. But the price erosion was enough to stabilize the credit in the primary sector, although the cheaper deals undercut secondary levels and credit quality continues to be a concern.
"The market adjusted and life goes on," said the head of one New York underwriting desk. "People's memories are kind of short. If it comes at the right levels things get done, although credit quality is in the back of everybody's mind."
In the primary sector yesterday, Goldman, Sachs & co. priced and repriced $338 million New York State Environmental Facilities Corp. state water pollution control revolving fund revenue bonds for the New York City Municipal Water Finance Authority. Serial yields were raised five basis points in 2000 to 2005.
The bonds are secured with user fees collected by the water authority.
The final scale included serial bonds priced to yield from 4.90% in 1993 to 6.75% in 2005. A 2010 term was priced to yield 6.996% and a 2014 term was priced to yield 6.95%.
The bonds are rated Aa by Moody's Investors Service, A by Standard & Poor's Corp., and AA by Fitch Investors Service.
In other New York action, Smith Barney, Harris Upham & Co. lowered the 2018 term bond by about one basis point on an issue of $103 million New York State Urban Development Corp. correctional capital facilities revenue bonds.
A Smith Barney officer said the deal, which is backed by state appropriation funds, saw typical interest from bond funds in the longer term maturities and retail demand on the short term bonds and serials.
The offering included serial bonds priced to yield from 5% in 1993 to 7.30% in 2005. A 2008 term was priced to yield 7.35%, a 2018 term was priced 7.473%, and a 2021 term was priced to yield 7.42%.
The issue is rated A by Moody's, BBB-plus by Standard & Poor's, and A by Fitch Investors Service.
Also in the New York sector, First Boston as senior manager for $ 299 million New York State Power Authority general purpose bonds priced Tuesday, lowered yields five to 25 basis points on serial bonds from 1992-2003 and two basis points in the 2019 maturity.
The final scale included serial bonds priced to yield from 4.25% in 1992 to 6.55% in 2007. A 2012 term was priced to yield 6.705%, a 2019 term was priced to yield 6.784%, and a 2020 term was priced to yield 6.692%.
The bonds are rated double-A by both Moody's and Standard & Poor's.
Away from the New York sector, $200 million Los Angeles, Calif., wastewate system revenue bonds were won by a Merril Lynch & Co. group in the competitive sector. Merrill won the deal with a true interest cost of 6.797897%.
Merrill reported an unsold balance of $3.7 million late in the session.
The offering included serial bonds priced to yield from 4% in 1992 to 6.60% in 2006. Term bonds were priced to yield 6.70% in 2012, and 2015 and 6.76% in 2021.
The bonds are insured by the Municipal Bond Investors Assurance Corp. and carry a triple-A rating from both Moody's and Standard & Poor's.
A member of the account said the term bonds saw good demand and the discounts were trading professionally right around the original offering.
Elsewhere in the primary, underwriters reported more follow-through business on deals priced earlier in the week.
Prudential Securities reported an unsold balance of $65 million from $148 million Missouri Board of Public Buildings special obligation bonds.
Chemical Securities, senior manager for $121 million Virginia Public Schools Authority school financing revenue refunding bonds, reported the issue all sold.
Prudential reported an unsold balance of $9.6 million from $87 million New York State Medical Facilities Finance Agency Mental Health Services Facilities improvement revenue bonds.
Relentless new supply has forced underwriters to price deals at cheaper levels, stranding secondary bonds at higher prices. Market players have halted most trading in the secondary as the bid-side shows signs of greater weakness when tested.
But national traders report good buying opportunities away from the big deals and the Street is hoping for a weak employment number Friday that will boost the market through the last of record year-end supply. Looking further ahead, market observers are predicting that large amounts of investor cash and decreasing supply will drive interest rates even lower in January.
Secondary market traders reported increased bid-wanted activity yesterday. There were several customer lists out for the bid, including a $25 million block of Los Angeles Department of Water and Power 6 5/8s of 2031, while other blocks averaged in the $5 million range.
Standard & Poor's Blue List of municipal bonds climbed $45 million to the $1.7 billion mark, but traders estimated actual Street float at much higher levels.
In the debt futures market, the MOB spread moved dramatically as the Treasury market again outplaced municipals. The March municipal contract settled up 7/32 to 94.01, and the March MOB widened to negative 197 from negative 180 Tuesday.
In secondary dollar bond trading, prices were quoted down 1/8 to 1/4 point for the third session in a row.
In late trading, Triborough Bridge and Tunnel Authority 6 1/2s of 2019 were quoted at 96-1/2 to yield 6.78%, while Port Authority of NBew York and New Jersey 6 1/2s of 2021 were quoted at 95 5/8-7/8 to yield 6.82%. Florida Board of Education 6 3/4s of 2021 were quoted at 99 1/4-5/8 to yield 6.78%, and New jersey Turnpike Authority 6 1/2s of 2016 were quoted at 97 1/4-3/8 to yield 6.71%.
Coupon reinvestment continued to invigorate short-term note prices as yields dropped for the third session in a row. Traders said there was approximately $160 million in notes out for the bid and bids sank as low as 3.65% before rising slightly near the close.
In late secondary trading, Los Angeles Trans were quoted at 3.70% bid, 3.65% offered. March New York State Trans were quoted at 5.10% bid, 5.05% offered. Texas notes were quoted at 3.70% bid, 3.65% offered in late cash trading. New York City Rans were quoted at 5.10% bid, 5.05% offered, while June California notes were quoted at 3.70% bid, 3.65% offered.
Merrill Lynch & Co. priced and repriced $180 million Reedy Creek Improvement District, Fla., utilities revenue bonds to lower serial bond yields by five to 10 basis points and term bond yields by about three basis points.
The final pricing included serial bonds scaled from 4.90% in 1994 to 6.65% in 2008. A 2011 term was priced to yield 6.697% and a 2016 term was priced to yield 6.771%.
The bonds are MBIA-insured and rated triple-A by both Moody's and Standard & Poor's.