Municipal prices fell 1/4 to 1/2 point yesterday after the Street was surprised by a news report that oil prices may rise and by strong economic data.
The market suffered some sudden price drops late last week, but seemed to stabilize on Friday. The firmer tone prompted some optimism about prospects for renewed gains this week.
But those hopes were dashed early yesterday after an article in The Wall Street Journal reported that Saudi Arabia decided to push for higher oil prices, sparking new inflation worries. The article estimated that the decision could add $3 to the price of a barrel of oil by the end of this year.
The government market headed sharply lower after the news, while municipal prices fell 1/4 point in light trading.
Traders noted some investors were buying bonds on the price dip, but generally, prices continued to deteriorate and market tone turned even more negative after stronger-than-expected economic reports.
The National Association of Realtors reported existing home sales rose 6% in April. The Conference Board said its measure of consumer sentiment rose to 71.6% in May from a revisded 65.1% April reading. Ford's mid-May car sales jumped 24.9%.
"The market never had a chance," one trader said. "People are definitely less optimistic after finding out that there's not much out there to help them out. This came out of nowhere."
In the debt futures market, the June municipal contract fell 17/32 to 95.04. But the MOB spread narrowed to negative 145 from negative 166 last Friday as the Treasury market lost significantly more ground than tax-exempts.
The negative tone and post holiday weekend doldrums kept market players on the sidelines yesterday, waiting for today's slate of new deals to test current levels.
"Customers will be focusing on new deals," a trader acknowledged. "We'll find out whether the buyers are going to put up their money or get out."
Of the new-issue product expected to be priced today, Standard & Poor's Corp. reported that the rating outlook is "negative" on $293 million of Detroit water revenue refunding bonds, Series 1992. Standard & Poor's cited the inability of the system to generate debt-service coverage in compliance with the rate covenant for the past two fiscal years. Moody's Investors Service, meanwhile, affirmed its A rating.
On the economic front, the markets will get a look at April durable goods orders, expected to show a 0.6% increase, according to 14 economists surveyed by The Bond Buyer.
Meanwhile, secondary trading was relatively light, although there were some bid-wanted lists circulating. Some larger blocks of bonds were out for the bid, including $16 million Florida State Board of Education 6s of 2025, which were said to have been sold to a permanent investor around 6.50%, less a slight concession.
In secondary dollar bond trading, prices were from unchanged to down as much as 3/4 point in spots.
In late action, Greater Orlando Aviation Authority AMT, insured 6-3/8s of 2021 were quoted at 96-7/8-97-1/4 to yield 6.61%, New Jersey Turnpike Authority 6-1/2s of 2016 were quoted at 99-3/4-lock to yield 6.52%, and South Carolina PSA 6-5/8s of 2031 were quoted at 98-1/2-3/4 to yield 6.73%. California GO 6-1/2s of 2012 were quoted at 97-1/8-1/2 to yield 6.76%.
Short-term traders reported a mostly inactive day of trading, with prices remaining in a range.
Late in the session, California Rans 3-1/4s were quoted at 3.60% bid, 3.55% offered; Los Angeles Trans 5-1/4s were quoted at 3.60% bid, 3.55% offered; Pennsylvania Tan 5s were quoted at 3.50% bid, 3.45%; New York State Tran 3.65s were quoted at 3.39% bid, 3.36% offered.
First Boston Corp. priced $54 million Dade County, Fla., aviation revenue refunding bonds for Miami internaitonal Airport.
The offering included serial bonds only, priced to yield from 3% in 1992 to 6.45% in 2007. The managers said they expect the issue to be rated double-A by both Moody's and Standard & Poor's.
N.Y.C. Water Authority
The New York City Municipal Water Authority will not issue variable-rate securities during its next planned bond sale, despite previous plans to do so.
Alan L. Anders, treasurer of the water authority, said officials there have decided to issue fixed-rate debt on June 15, instead of the $200 million in variable-rate securities it considered only weeks ago.
The Water Authority had planned to issue $200 million of variable-rate debt through lead underwriter Smith, Barney, Harris Upham & Co., in an attempt to take advantage of favorable interest rates, city sources said.
But the city put off its plans in an attempt to better develop a variable-rate structure it can use in future bond sales, said Mr. Anders, who is also director of financing policy at the city's Office of Management and Budget.
Mr. Anders said the Water Authority will likely issue varibale-rate debt sometime in the fall. The deal would mark the first variable-rate issue for the water authority.