The cash market lagged futures yesterday, while nearly $3 billion of new deals were priced aggressively, widening the spread between new issues and outstanding bonds.
Municipals stalled on Tuesday and traders reported buyer resistance to already high price levels and growing secondary supply. There was speculation that the market would sell off and many players were hoping for a slight adjustment after big price run-ups last week.
But those tentative players were forced back into the market early yesterday, traders said, when the Treasury long bond charged out of the gate, hitting a record low yield of 6.25% soon after the opening.
"People who were thinking the market was toppy got forced right back in," a trader said. "We've seen a fair amount of business and it seems like there's plenty of cash out there. You have to respect that."
Reflecting the market's recent strength, The Bond Buyer Municipal Bond Index reached a record high of 103.25, resulting in a record low yield to maturity of 5.63%.
But, despite the recent bullish signs, traders said action was spotty yesterday with mostly crossover business.
"Secondary bonds are not running anymore," a trader said. "You're starting to see more of a spread between the pricing of negotiated deals and the secondary."
By session's end, the September municipal contract settled up 11/32 to 103.27. The MOB spread was calculated at negative 399.
Cash, meanwhile, was quoted only 1/8 to 1/4 point higher in spots.
Traders said there were few tradeable bonds -- those with features attractive to buyers -- in the secondary, which may also have contributed to the cash market's less robust performance.
"There's plenty of cash out there but the buyers are picky," a trader said. "They want a one basis point concession or you can't get the bonds done."
Looking at secondary inventory, supply has been on the rise this week.
The Blue List rose $13 million yesterday, to $1.4 billion. Since Friday, it has grown $181 million, to $1.4 billion, its highest level since Aug. 10 when it was $1.48 billion.
Previously, the list declined for seven straight days, dropping from $1.97 billion on Aug. 4 to $1.22 billion Aug. 13.
Underwriters generally reported small balances from new issues and some prices on negotiated deals were raised.
Topping the competitive slate, a First Boston Corp. group won $242 million Pennsylvania general obligation bonds with a true interest cost of 5.0386%.
First Boston reported an unsold balance of $55.7 million.
Morgan Stanley & Co. had the next lowest bid with a TIC of 5.0480%.
The bonds were reoffered to investors at yields ranging from 2.60% in 1994 to 5.30% in 2013.
The bonds are rated A1 by Moody's Investors Service and double-A-minus by Standard & Poor's Corp. and Fitch Investors Service. except for insured bonds.
The 2002 maturity is insured by the Financial Guaranty Insurance Co. and rated triple-A by the three ratings agencies.
An issue of $150 million Metropolitan Atlanta Rapid Transit Authority sales tax revenue bonds was won by Chemical Securities with a net interest cost of 5.171%.
Chemical reported an unsold balance of $77.6 million.
Serial bonds were reoffered to investors at yields ranging from 3.85% in 1997 to 5.30% in 2013. Bonds from 2014 through 2020 were not formally reoffered to investors.
The issue is insured by the AMBAC Indemnity Corp. and rated triple-A by Moody's and Standard & Poor's.
A Lehman Brothers group won $123 million Metropolitan Seattle, Wash., sewer refunding revenue bonds with a TIC of 5.5598%.
The firm reported an unsold balance of $39.6 million.
Donaldson, Lufkin & Jenrette Securities Corp. had the cover bid with a TIC of 5.6109%.
Serial bonds were reoffered to investors at yields ranging from 3.35% in 1995 to 5.57% in 2023.
The issue is AMBAC-insured and rated triple-A by Moody's and Standard & Poor's.
Massachusetts Boosts Size
At the top of the negotiated slate, Bear, Stearns & Co. priced, repriced and restructured $842 million general obligation refunding bonds for the Commonwealth of Massachusetts.
At the repricing, the amount was boosted from $682 million and a 2010 maturity was added to the scale.
Prices were raised to drop yields by five basis points from 1998 to 2001 and by two basis points in 2005 and 2010.
The final offering included serial bonds priced to yield from 4.10% in 1998 to 5.23% in 2010.
Bonds in 2003 , 2005, and 2010 are insured by the AMBAC Indemnity Corp. and rate triple-A by Moody's and Standard & Poor's.
The 2009 maturity is backed by FGIC and rated triple-A by Moody's, Standard & Poor's, and Fitch. The remainder of the loan is rated single-A by all three ratings agencies.
Elsewhere, a 24-member syndicate led by Pryor, McClendon, Counts & Co. as senior manager priced $180 million special tax revenue and refunding bonds for the Pennsylvania Intergovernmental Cooperation Authority.
The offering included $170 million MBIA-insured bonds priced to yield from 2.80% in 1994 to 5.33% in 2008 and 5.47% in 2013 and 5.55% for maximum term bonds in 2022. There also was $26 million of uninsured bonds, but they were not formally reoffered to investors.
The managers said they expected the insured bonds to be triple-A rated by Moody's and Standard & Poor's, while the remainder of the loan was expected to be rated Baa by Moody's and A-minus by Standard & Poor's.
Kidder, Peabody & Co. priced, repriced, and restructured $182 million Rhode Island Convention Center Authority refunding revenue bonds.
At the repricing, the amount was boosted from $157 million and maturities were added in 1994 and 2009 and 2010. Yields were lowered by about two basis points in 2015 and 2020.
The final scale included serial bonds priced to yield from 3.40% in 1994 to 5.40% in 2010. A 2015 term was priced as 5 1/4s to yield 5.50% and a 2020, containing $62 million, was priced as 5s to yield 5.58%.
Bonds in 1995 through 2015 are non-callable.
The deal is MBIA-insured and rated triple-A by Moody's and Standard & Poor's.
Bear Stearns tentatively priced $135 million Broward County, Fla. Water and Sewer Utility revenue refunding bonds.
The offering included serials priced to yield from 2.75% in 1994 to 5.35% in 2010. A 2014 term was priced as 5 1/8s to yield 5.40% and a 2018 term was priced as 5s to yield 5.42%.
The bonds are AMBAC-insured and are rated triple-A by Moody's and Standard & Poor's.
Goldman, Sachs & Co. tentatively priced $121 million hospital refunding revenue certificates of participation, including derivatives, for the California Statewide Communities Development Authority and the Cedars-Sinai Medical Center.
The offering included $65 million current coupon bonds priced to yield from 2.80% in 1994 to 5.25% in 2007. A 2017 term was priced as 5 1/4s to yield 5.56%.
There also was $28 million periodic auction reset securities and $28 million corresponding inverse floating rate securities.
The bonds are rated Aa by Moody's.
Traders reported spotty activity. Dollar bonds were quoted unchanged to 1/8 to 1/4 point higher in spots.
In late action, Charlotte COP AMT AMBAC 5 1/4s of 2020 were quoted at 5.50% bid, 5.47% offered; New York State Dormitory Authority 5 1/4s of 2019 were quoted at 5.65% bid, 5.64% offered; and Philadelphia Water MBIA 5 1/4s of 2023 were quoted at 5.54% bid, 5.52% offered.
In the short-term note market, yields were mixed on the day.
In late trading, California Rans were offered at 2.80%, while New York State notes were offered at 2.65%.