Municipals marked time yesterday as the 30-year Treasury bond ended just inside the plus column after recouping slight earlier losses caused by the dollar's dip against the German mark.
"Govies are unchanged; we're unchanged pretty much," one trader said, adding, "I don't consider a five-tick move on the govie, based on the dollar, a major move." The 30-year Treasury bond eventually erased slight losses to close up 1/32 for a 7.82% yield.
A municipal analyst said dollar bonds as well as yields on high-grade issues ended unchanged. In debt futures, the December municipal contract was down nearly 1/8 point to 87 10/32s. Yesterday's December MOB spread was negative 384, compared with negative 382 on Friday.
A municipal trader said "about 10 or 11" bid fists were out yesterday, with two more being readied for today. While 10 lists used to be considered a lot, "it's sort of on the low end these days ... that's become the standard now, about 10 lists a day," he said. Despite their number, the lists didn't appear to cause too much trouble.
"They were sprinkled throughout the day, so it didn't seem like it was all at once," the trader said.
Another trader, however, lamented the pressure that bid lists have put on the market of late.
"Normally you'd do better in here because there's absolutely no [new] supply whatsoever, but the funds themselves are creating a tremendous amount of supply by selling on these bid wanted lists and it's supply that nobody wants," the trader said.
He cited "incredible hunger" on retail buyer's part for full coupon, new issues, but said that room and pop don't have any use for the discounts the funds are offering.
"I can sell current coupons very well in here, the rates have backed up ... most people's tax brackets are higher than they were a year ago, there's good demand," he said. The discount laden bid lists continue to hurt the market, the trader added.
"All that supply is doing is pressuring the market, it's not helping it, "he said.
He noted that new issues get priced off the discount paper, prompting institutions that know the new deals are undervalued to snap them up.
"The new issues get priced off these crummy bids that the secondary discounts get. And then you can't get any because everybody knows that the discounts are worth 15, 25 [basis points] less than the currents. But they price the currents right on top of them so, boom, they disappear,' the trader said.
With new deals are so few and far between now, and institutions continuing to snap them up, retailers are stuck looking at the discount bonds, which no one wants no matter how cheaply they are priced, he said.
"It doesn't matter how cheap a certain car is, if nobody wants to buy that car," the trader said. "Even though it reaches a level where it is a gift at some point, people still don't come rushing up to buy it, and I think that's what's happening with these discounts," he said
A second trader said discounts are in some demand for tax swapping purposes, but generally bid wanted volume exceeds demand for swaps, he said.
Turning to yesterday's government market, the 30-year bond ended substantially unchanged, making up for some slight weakness earlier caused by the dollar's slide against a strengthening German mark. Players were apparently moving out of dollars and back into marks following Chancellor Helmut Kohl's narrow electoral victory, said David C. Munro, chief U.S. economist at High Frequency Economics, Ltd.
"I'm relatively certain that there was a certain amount of paring of DM exposure all through the campaign," Munro said. Prior to Kohl's win, players had feared that they'd have to familiarize themselves with a new leadership and its agenda. Kohl's win removes that uncertainty, strengthening the mark, he said.
Munro said while the election's outcome had a "predictably pretty strong" effect on the dollar and the mark, it was interesting to note that the spillover effect from the dollar on the Treasury long bond was "pretty moderate."
On the domestic front, Munro sees little this week to unnerve the market.
"There are two reports coming which on past occasions have had a fair amount of fallout ... but I don't think they are going to have a lot of effect," citing Thursday's Philadelphia Fed's regional business survey and the August trade report on Wednesday."
No one expects much improvement in the U.S. trade situation at present. Munro said.
While the Philadelphia Fed survey could show some strength over last month, the market can probably withstand it, he said.
"The Philly Fed will probably recover some, but we've had so solid an indoctrination in the last week [on] the notion that inflation is not ripping away from us that I think we can probably absorb some bullishness from Philadelphia," Munro said.
While both reports could trigger some downside effect, Munro doesn't think it will be major.
"I think the news on the domestic economy last week was good enough to have some lasting effect," Munro said. "I don't think that this sort of rally that you immediately assume has to unwind itself."
Turning to this week's new issues, a $245 million Indianapolis Airport Authority Revenue bond offering tops the negotiated calendar. The offering is expected tomorrow through senior manager CS First Boston. Proceeds will be used to develop a Federal Express facility on the airport's southwest side, said Alan Boone, managing director of finance at the authority.
"They're special facilities bonds, and they're paid by rentals from that special facility," Boone said yesterday. "[Federal Express] pays the rentals, and then we pay the trustee and the trustee pays the bond holders."
In an Aug. 1 press release, Indianapolis Mayor Stephen Goldsmith, together with Gov. Evan Bayh and Robert Palmer, vice president of HUB Operations-Central for Federal Express, announced plans for a $210 million expansion of the courier's hub at Indianapolis International Airport.
The project, slated for completion in 1997, will nearly double the complex's size and create roughly 1,000 new jobs. The expansion marks the largest single facility bond financing in Federal Express history, the release said.
The authority is also planning a deal involving United Airlines, and an additional construction phase for the airline's maintenance facility, Boone said.
"The issue itself as far as the airport authority has been approved," Boone said, adding that no pricing date has been set yet, The offering is slated to be done through Morgan Stanley & Co., and is not expected to exceed $225 million, Boone said.
Getting back to this week, the Guam Power Authority is expected to price $103 million revenue bonds through senior manager Morgan Stanley on tomorrow. CS First Boston is expected to price $100 million Connecticut Housing Finance Authority revenue bonds tomorrow. On Thursday, Morgan Stanley is expected to price $163 million of Maryland Transportation Authority special obligation revenue bonds.
In the competitive sector today, players will vie for $125 million San Francisco City and County Airport Commission revenue bonds and $93 million Salem County, N.J., Pollution Control Financing Authority revenue bonds.
"At this point I really don't know what I'm going to be getting involved in this week if anything," said one portfolio manager, adding that he's seeing "modest outflows."
"There's not a lot of cash to work with, so I'm pretty much taking it day by day," he said.
The 30-day supply of municipal bonds yesterday totaled $3,256 billion, up $246.3 million from Friday. That comprises $1.695 billion of competitive bonds, up $224 million from Friday, and $1.561 billion of negotiated bonds, up $22.3 million from Friday.
Standard & Poor's Blue List of municipal bonds rose $4.7 million yesterday to $1.946 billion.