Bond prices continued to retreat from overwhelming supply yesterday, and there was considerable uncertainty about how investors will receive the long list of new issues.
Much of the financial community focused on France's approval of the Maastricht treaty Sunday, but a record 30-day supply of nearly $11 billion far outweighed the importance of the European currency crisis in the municipal arena.
Even though tax-exempts appear attractive compared to Treasury bonds and an influx of between $5 billion and $7 billion in investor cash is expected to become available by Oct. 1 redemptions, the tone was still heavy.
"The Street is not in a position to take on that kind of supply," said Dennis J. Boyle, managing director of Merrill Lynch & Co.'s national underwriting desk. "There is money around, but buyers are selective, going after the better performing names, structures, and credit quality. It's the loans that don't have that appeal that is really suffering."
Market players said that some deals may be postponed due to crowding or negative arbitrage, but most of the new-issue slate is expected to be priced.
By session's end yesterday, secondary prices were quoted 3/8 to 1/2 point lower in light trading.
Bucking the downward trend were some New York Metropolitan Transit Authority bonds. The bonds were quoted 1/2 point higher late in the afternoon after the Municipal Bond Investors Assurance Corp. announced it had limited capacity for revenue bonds. Capacity was limited to $5 million per firm on a first-come first-served basis.
In the debt futures market, the December municipal contract settled down 20/32, to 95.25. The December MOB spread widened to negative 305 from negative 299 Friday.
Looking ahead, the first of the major new deals expected to be priced today is $1.4 billion of North Carolina Eastern Municipal Power Agency power system revenue and refunding bonds.
Market sources said the deal could fetch an interest rate as high as 6.50% for long-term bonds.
The issue will be the first barometer of investor demand, they added.
Yesterday's New Deals
New issuance was light yesterday, but market source reported the going was mostly slow.
Merrill Lynch tentatively priced $200 million of Illinois general obligation college savings zero coupon bonds.
The issue has a four-day order period.
The offering included serial bonds tentatively priced to yield from 3.75% in 1994 to 6.20% in 2013.
The bonds are rated Aa by Moody's Investors Service and AA-minus by Standard & Poor's Corp.
In other action, PaineWebber Inc. priced and repriced $60 million of non-callable Ohio Building Authority state facilities bonds.
At the repricing, serial bond yields were raised by five basis points in 1994 through 2007 and the 2012 term bond yield was also raised by five basis points.
The final reoffering included $17 million transportation building fund project bonds priced to yield from 3% in 1993 to 6.15% in 2007. Also, $43 million of juvenile correctional building fund project bonds were priced to yield from 3% in 1993 to 6.05% in 2006, and 6.30% in 2012.
The issue is rated A by Moody's and Standard & Poor's Corp.
Trading was light in the secondary market yesterday, as the Street waited for the results of new issues. But supply is on the increase, reflected by The Blue List, which rose to $1.3 billion from $1.26 billion on Friday.
Several traders noted that the Street has focused so much attention on new-issue product that opportunities have been created in other sectors of the market.
"The big houses are so concerned about new deals that they're not paying attention to the secondary at all," a Chicago-based trader said. "That has created some price disparity in the secondary, and we're seeing some surprising levels."
For example, in the prerefunded bond sector, traders said that spreads have doubled in some cases since the market was at its height in July.
Bonds with national names callable in 1995 were quoted at 4.20% bid, 4.15% offered, while bonds callable in 1996 were quoted at 4.40% bid, 4.35% offered. The same bonds were 75 to 100 basis points over comparable Treasuries in July and are now around 150 basis points over the government market.
Bids for bonds also varied significantly. For example, one trader said that an odd lot of prerefunded triple-A California paper that was quoted at 3.15% offered and received a 3.60% bid from a major bond house.
In secondary dollar bond trading, Chicago GO AMBAC 5 7/8s of 2022 were quoted at 93 1/2-5/8, to yield approximately 6.36% on the bid-side; Puerto Rico GO 6s of 2014 were quoted at 95 3/8-5/8, to yield 6.39%; and New York City Water Authority 6s of 2017 were quoted at 93 1/4-3/8, to yield 6.55%.
Denver Airport Authority 6 3/4s of 2022 were quoted at 96 1/4-5/8, to yield 7.05%; Los Angeles Department of Water and Power 6s of 2032 were quoted at 95 1/4-3/4, to yield 6.32%; and Florida Board of Education 6s of 2025 were quoted at 95 5/8-3/4, to yield 6.31%.
In the short-term note sector, yields were mixed on the day.
In late secondary trading, Los Angeles Trans were quoted at 3.12% bid, 3.08% offered; Texas Trans were quoted at 3.12% bid, 3.08% offered; and Wisconsin notes were quoted at 3.12% bid, 3.08% offered. New York State Trans were quoted at 3.20% bid, 3.15% offered.
Pending New Issues
New Jersey plans to price $1.6 billion in tax and revenue anticipation notes tomorrow.
First Fidelity Securities Group will be lead manager on $1 billion of the notes, and Kidder, Peabody & Co. will handle the remaining $600 million.
The issue marks only the second time New Jersey has sold notes. The state issued a total of $1.8 billion last year, according to state officials.
The current issue is somewhat smaller than the previous deal, because New Jersey's cash position at the start of the 1993 fiscal year was bolstered by a one-shot infusion resulting from a re-valuation of pension fund assets.
The Illinois State Toll Highway Authority has rescheduled its sale of $450 million of priority revenue bonds for tomorrow, according to authority officials.
The deal was originally scheduled for sale today, but the authority decided to delay until discussions with ratings agencies were completed.
If the issue is not priced tomorrow, the authority said it may wait until next week to enter the market.
New York City officials announced yesterday they will sell $75 million of so-called "NYC Bonds" as part of a larger bond sale planned for October.
The NYC Bond program, which began with a $100 million issue in February, is an attempt by finance officials to broaden the city's investor base to include more retail buyers. City officials will sell the bonds, which are zero coupon securities that pay interest only at maturity, during a $1 billion sale of city debt scheduled for October.
Under one investment scenario in the program, an investor can purchase a 15-year NYC Bond for $2,000. The bond will pay $5,000 at maturity.
Prudential Securities Inc., which headed the last NYC Bond sale, was tapped to lead manage this one. Lehman will lead manage the $1 billion bond offering, the city said in a press release.