The Local Government Assitance Corp. offered $448.2 million of bonds yesterday in its fourth borrowing to wean New York from its spring borrowing habit.
The New York issue dominated the primary sector on a day when bonds in the secondary tax-exempt arena outperformed U.S. Treasury securities.
"It seemed like another good day for municipals," one trader said. "We've surmounted the supply problem."
A group headed by Lehman Brothers priced the deal early yesterday morning with a maximum yield of 7.18% in 2019.
But because of the market's strong demand for the A-rated paper, the syndicate was able to restructure some maturities, and shave three basis points from the long end, five from the medium-range, and 10 from the short maturities.
"There was very good demand throughout," said Stanley Ciemniecki, an executive vice president and manager in the national underwriting department at Lehman Brothers.
The deal was structured with serial bonds yielding from 4.70% in 1993 to 7% in 2007. The deal's maximum yield of 7.15% now comes on a 2018 term bond. The bonds are callable in 2002 at 102, and at par in 2004. It carries ratings of A from Moody's Investors Service and A-plus from both Standard & Poor's Corp. and Fitch Investors Service.
Serial maturities attracted interest from institutions including bond funds, Mr. Ciemniecki said.
A 2011 term bond priced to yield 7.08% was designed to appeal to individual buyers, he added. It was the same yield as on the 2011 maturity in the corporation's last offering, $449 million of debt brought to market in September.
Mr. Ciemniecki said almost all of the issue priced yesterday would be sold on a priority basis with the exception of the 2011 maturity.
In secondary trading yesterday, municipals held their ground even as the Treasury market began to fade.
Traders reported brisk sales of recently-priced new issues as well as active secondary trading all along the curve, but concentrated in the five to 12-year range. Numerous blocks changed hands, including Texas 6 1/2 of 2021, which were rumored to have traded around a 6.74%.
Cheapness of municipals relative to Treasury bonds, one trader said, could be driving the municipal market to improve even as the more dominant Treasury market, which usually sets the tone for municipals, languishes.
That could mean U.S. Government market players could increase their purchases of municipal debt. "Almost every crossover buyer has got to be looking at 10-year and under municipals," the trader said. "We're going to try to narrow spreads between governments and municipals."
Although traders said going-away business continues to find permanent homes for the recent spate of new issues, dealer holdings bulged $140 million yesterday, to put The Blue List of dealer inventory at $1.7 billion.
"Secondary blocks are coming in and fitting inquiries, and boom, they're gone," a source said. But over all, "the money is being spent on new issues."
In late short-term note trading, Los Angeles Trans were quoted at 3.59% bid, 3.55% offered. Texas Transd were quoted at 3.60% bid, 3.55% offered, and New York City Rans at 5.14% bid, 5.05% offered. New York State Trans were quoted at 4.85%-4.80%.
Looking ahead, supply of new issues is tapering off as the holiday respite nears. The 30-day visible supply of new issues totaled $2.45 billion, down from Tuesday's $3.66 billion.
In the debt futures market, the March municipal contract was quoted late in the day as off 1/32, at 94 15/32, and the MOB spread for March stood at negative 190.