Municipal bond prices ended flat to slightly lower yesterday as the market settled into a holding pattern ahead of Friday's July employment report.
"It's just a natural breather; Nothing much is going on," a municipal analyst said.
High-grade issues ended unchanged to slightly weaker on the long end. Dollar bonds finished unchanged to down 1/8. The overall market had been down 1/8 point through early afternoon, the analyst said.
"It was worse in the morning when governments were lower and better in the afternoon when governments were higher," a municipal trader said.
The 30-year Treasury bond closed up nearly 1/4 point to yield 7.37% after slower July car sales suggested a weaker economy. In debt futures, the September municipal contract ended up nearly 1/4 point to 92 13/32s. Yesterday's September MOB spread was negative 396, compared with negative 398 on Tuesday.
In negotiated action, PaineWebber priced $241 million of South Orange County (Calif.) public finance authority revenue bonds. The bonds offered a top yield of 6.15% in 2019. The final scale was not significantly different from the preliminary one, a source familiar with the deal said, adding that few bonds were left to sell by late in the day.
"We just had bonds left in a few maturities," he said.
In competitive action, a CS First Boston group won $100 million Tennessee Housing Development Agency bonds with a true interest cost of 6.509%. The bonds, which are subject to the alternative minimum tax, were reoffered to investors at a top yield of 6.60% in 2025.
Lehman Brothers had the cover bid with a TIC of 6.532%, and J.P. Morgan Securities followed with a 6.567% TIC. Only three bids were submitted.
Ann Butterworth, Tennessee's director of bond finance, said she was pleased with the three bids received for yesterday's deal, but added that she found it interesting that a Tennessee note deal last spring drew 17 bidders.
"I feel good with three, [but] we can always take more," Butterworth said. She conceded, however, that the May note offering probably attracted more bidders because, at $38.5 million, it was smaller and because the issue had a one-year maturity.
Late in the day, a balance of $9.385 million was reported for Tennessee's deal. Underwriters also reported an unsold balance of $59,835 million for Illinois' $300 million deal, which was done Tuesday.
One portfolio manager said he passed on this week's new deals.
"I didn't see any particular attraction in any of the new deals that came," he said, adding that most appeared to be fairly fully priced.
"1 think the market popped up to the high end of the trading range," the portfolio manager said. While both Treasuries and municipals are near the high end of their ranges, municipals are particularly rich because of diminished supply, he said. Tax-exempts have also shown more stability than governments, tending to gap up and down less frequently.
One of the deals the portfolio manager thought came rich was the New York State Thruway Authority's $375 million of highway and bridge trust fund bonds negotiated through Smith Barney Inc. on Tuesday.
Even though the issue is a new credit and is triple tax-exempt, "It was a very full pricing," the portfolio manager said. The offering, which Moody's Investors Service-rates A and Standard & Poor's Corp. rates A-minus, originally put forth a top yield of 6.20% in 2014. That was knocked back to a 6.15% at the repricing, the source said.
A source familiar with the deal said it met with strong demand from both retail and institutional investors.
"It was absolutely oversubscribed," he said.
The portfolio manager said municipal bond funds chased the new thruway bonds, and other new issues too, because they have built up one of the highest cash positions of the year. He estimated that funds now have roughly 5% to 6% of their assets in cash.
When portfolio managers see the market go up as it did on Friday, they go from being afraid of a downturn to being afraid they'll miss the upswing, the portfolio manager said.