Prices End Mixed On Heavy Supply, Revenue Yields Near Historic Low
Municipal prices ended narrowly mixed yesterday on the recent deluge of supply, but prices show few signs of weakness and traders cite a bullish tone that is likely to continue into next week.
Secondary trading was active during the morning session and traders the morning session and traders reported around $150 million more of bonds out for the bid. Some dollar bonds traded down 1/8 point, but over all bonds continue to move up in price on a faltering economy.
"We haven't had a real correction in a long time," a New York-based trader acknowledged. "But we're in a bull market. It stalled today because of all the big deals we've had and it would be normal to have some adjustment before we move to higher ground, but that's just not happening."
The Bond Buyer's revenue bond index fell four basis points this week, to the 6.91% mark yesterday, its lowest level since its inception in 1979, from 6.95%.
The 11-bond index was down five basis points to 6.60% from 6.65% a week ago. The index has not been that low since it hit 6.55% on March 19, 1987.
The 20-bond index also fell five basis points on the week to 6.73% from 6.78%, it's lowest level since March 19, 1987, when it was 6.68%.
The 20-bond and 11-bond general obligation bond indexes have declined in 14 of the past 15 weeks, and the 30-year revenue bond index for 13 of the past 15 weeks.
Since beginning its decline on June 13, when it hit the year's high of 7.19%, the 20-bond is down 46 basis points. The 11-bond has fallen 44 basis points from its 1991 high of 7.04%, set on the same day. The revenue bond index has declined 45 basis points from 7.36% on June 13.
Fundamentals remain positive and the market got more news it liked yesterday, when initial state unemployment insurance claims rose 36,000 to a seasonally adjusted 439,000 in the week ended Sept. 14.
"The fundamentals are tremendous right now," a trader said. "There's nothing out there to force the market down and if there was, there's plenty of cash right there for support."
Investors continue to move into municipals, despite the low yields, and bonds out for the bid are going to permanent investors, traders said.
Secondary supply is increasing as Standard & Poor's Corp.'s The Blue List of dealer inventory climbed $36 million yester to $1.47 billion. Since last Thursday, it has increased $179 million.
"I'd like to see a little technical correction before we move higher," another trader said. "We consolidated over the last couple of days to where prices were unchanged, so maybe that was our correction. The only sign of trouble might be the declining volatility in the futures market, but it's hard to fight the tape."
In the debt futures market yesterday, the December municipal contract settled up 8/32 to 94.08.
The market also continues to wade through supply handily, with most bonds going to investors at aggressive yields as buyers move out along the municipal curve to find attractive yields, despite low rates.
In light competitive action yesterday, PaineWebber Inc. won $63.6 million Westchester County, N.Y., GO bonds with a net interest cost of 5.7468%.
Reflecting the market's bullish tone, the deal came five basis points lower in yield than the $524 million of gilt-edge California GOs, which were priced to yield 6.35% in 2011 on Wednesday.
The Westchester bonds were reoffered to investors at yields ranging from 4.30% in 1992 to 6.25% in 2011.
PaineWebber reported an unsold balance of $11 million late in the session.
The bonds are rated triple-A by Moody's Investors Service and Standard & Poor's Corp.
In secondary dollar bond trading, Triborough Bridge and Tunnel Authority 6 5/8s of 2017 were quoted at 98 1/2-3/4 to yield 6.72%. New Jersey Turnpike Authority 6.90s of 2014 were quoted at 99 5/8-7/8 to yield 6.90%. New York LGAC 7s of 2021 were quoted at 99-1/4 to yield 7.06%, while New York LGAC 7s of 2016 were quoted at 98 1/8-3/8 to yield 7.05%. East Bay California 6s of 2016 were quoted at 97 5/8-7/8 to yield 6.16%.
In the short-term note sector, yields sank five basis points on average yesterday as yields continue to move lower.
In late secondary trading, Los Angeles notes were quoted at 4.42% bid, 4.35% offered, while March New York State Trans were quoted at 5.18% bid, 5.15% offered. Pennsylvania paper was quoted at 4.55% bid, 4.50% offered and Texas notes were quoted at 4.40% bid, 4.35% offered in late cash trading.
Negotiated New Issues
Stephens Inc. tentatively priced $29.4 million of Little Rock, Ark., Health Facilities Board hospital refunding revenue bonds for the Baptist Medical Center.
The offering included bonds tentatively priced to yield from 5% in 1992 to 6.70% in 2004.
Bonds from 2005 to 2009 were not formally reoffered to investors.
The issue is rated A-plus by Standard & Poor's.