Prices End Up 1/8 On the Strength Of Treasuries, Lighter Calendar

The municipal market was pulled along by the Treasury market's robust updraft Friday, but there was reason enough within the tax-exempt world to notch a firm 1/8 point gain.

Market participants, still reeling from almost $3.5 billion of new issuance last week, pointed to this week's relatively light calendar of about $1 billion and concluded it would be a piece of cake.

"There's not much there," said a New York trader, "why shouldn't we follow Treasuries?"

Secondary market trading saw most issues increase 1/8 point, with some triple-B and single-A rated issues gaining 1/4 point, traders said. The yields on oft-quoted dollar bonds dropped about five basis points in sparse but firm activity.

The marketwide strength was also attributed to the almost universal opinion that the Federal Reserve will be easing monetary policy yet again. Interpretations of a meeting between President Bush and Fed Chairman Greenspan sent the Treasury long bond up more than 5/8 point.

But there were still more reasons cited Friday to buy municipals. Traders also said arbitrage-related trading was helping sustain the price improvement, with futures trading strategies employed actively most of the day.

Friday's debt futures trading saw the December municipal contract settled up 9/32 to 94.17. The MOB spread hit negative 171.

One underwriter said the market was beginning to weigh the impact of October's reported $100 billion in maturing certificates of deposit, and that, too, supported prices. A sizeable chunk of that money will be drawn into municipals, he said.

"It's coming due," the underwriter said, "and it's coming here."

In the short-term note sector, Los Angeles and New York yields firmed at the outset and held the levels all day. Other paper was flat on the day.

In late secondary trading, Los Angeles notes were quoted at 4.43% bid, 4.40% offered, while March New York State Trans were quoted at 5.20% bid, 5.17% 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.

California's sale of $524 million general obligation bonds shows just how low yields have come. The issue, priced by Bank of America, had yields ranging from 4.30% in 1992 to 6.35% in 2011. Despite the fact that California is a triple-A rated credit, it is still startling that investors bought a 20-year obligation that yields only 6.35%, municipal sources said.

This week the Triborough Bridge and Tunnel Authority will sell $437.71 million of debt through a negotiated syndicate led by Dillon, Read & Co. The other large sale is a $164.63 million competitive sale by Rhode Island scheduled for tomorrow.

In other news, the Port Authority of New York and New Jersey is mulling the sale of its first taxable issue this fall, an official with the authority said last week.

The authority has to sell the bonds as taxable to comply with federal tax law, the official added. Proceeds from the bond sale will finance a variety of projects, including projects at the airports the authority oversees and the World Trade Center. The size of the issue is tentatively set at $50 million and the authority is eyeing the month of November for the sale.

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