Municipals were unable to capitalize on a modest bounce in Treasury prices yesterday as heavy supply continued to fuel a downward bias and create obstacles for new issues.
The Treasury market got a boost after the Commerce Department reported U.S. housing starts declined 2.8% in July, to a seasonally adjusted annual rate of 1.119 million units.
In the debt futures market, the September municipal contract settled up 10/32, to 98.00, and the MOB spread widened to negative 257 from negative 250 Monday.
But nearly $1.6 billion of new issues hit the primary sector, and secondary prices were generally weaker in light trading, as a result.
There were some bid-wanted lists in the $30 million-to-$40 million range circulating in the Street, but market players sat apprehensively on the sidelines waiting to see how the market handles the supply glut.
"There are too many bonds in the system, and there's no real flow of business." one trader said. "I think we're going to see The Blue List hit $2 billion [today], and that's a danger sign. The market is going to be choppy."
Looking ahead to supply, The Bond Buyer calculated 30-day visible supply at $7.52 billion, while The Blue List jumped $156 million to $1.82 billion.
The primary sector was crowded enough yesterday that several firms opted to postpone scheduled sales, including $623 million Washington general obligation bonds, which were scheduled to be priced yesterday by Goldman. Sachs & Co., and $272 million of Texas Municipal Power Agency bonds, which were scheduled to be priced by Merrill Lynch & Co.
Underwriters priced deals cautiously at slightly lower levels yesterday and they saw a mixed response from investors.
Dominating action in the competitive sector, $250 million of Illinois full faith and credit general obligation bonds were won by a J.P. Morgan Securities Inc. group with a true interest cost of 9.9055%.
An unsold balance was not immediately available near session's end.
Serial bonds were reoffered to investors at yields ranging from 3.60% in 1994 to 6.10% in 2013. The issue is rated Aa by Moody's and AA-minus by, Standard & Poor's.
A Donaldson, Lufkin & Jenrette Securities Corp.group won $185 million of Los Angeles Department of Water and Power, Calif., electric plant refunding revenue bonds with a true interest cost of 6.3753%.
The firm reported all bonds sold by the end of the trading session.
The bonds were priced at par to yield 6.30% in 2025, 2027, and 2029.
The issue is rated double-A by Moody's and Standard & Poor's.
Morgan Stanley & Co. tentatively priced $194 million of Southern Minnesota Municipal, Power Agency Power Supply System revenue bonds.
The offering included $127 million of Series 1992 A bonds priced to yield from 5% in 1998 to 5.80% in 2005. A 2018 term, containing $91 million of the loan, was priced as 5 3/4s to yield 6.20%. There also was $67 million Series 1992 bonds priced to yield from 4.50% in 1996 to 5% in 1998, 6% in 2007, 6.125% in 2012 and 6.11% in 2018.
The bonds are rated A1 by Moody's, A-plus by Standard & Poor's, and Duff and Phelps.
Smith Barney, Harris Upham & Co.tentatively priced $185 million of noncallable student loan revenue bonds for the New England Education Loan Marketing Corp.
The offering included $169 million of Issue A refunding bonds priced at par to yield 5.80% in 2002 and $16 million of subordinated Issue G bonds, subject to the federal alternative minimum tax, priced at par to yield 6% in 2002.
The Issue A bonds are rated triple-A by Moody's and the the Issue G bonds are rated A1 by Moody's.
A syndicate led by Alex. Brown & Sons as senior manager priced and repriced $162 million of Maryland Transportation Authority Transportation Facilities revenue bonds.
Some current interest bond yields were raised by two to five basis points, while some capital appreciation bond, yields were lowered by about two basis points.
The final reoffering scale included $121 million of current interest bonds priced to yield from 4.375% in 1996 to 5.90% in 2006. A 2013 term was not formally reoffered while a 2015 term was priced as 5 3/4s to yield 6.20%. There also was $41 million of capital appreciation bonds priced to yield 6% in 2004 and from 6.25% in 2007 to 6.375% in 2012.
The issue is rated A1 by Moody's and A-plus by Standard & Poor's.
Robert W. Baird & Co. tentatively priced $156 million of Milwaukee County, Wis., general obligation refunding bonds.
Serial maturities were priced to yield from 2.80% in 1993 to 6.15% in 2010.
The issue is rated A1 by Moody's and double-A-minus by Standard & Poor's and Fitch Investors Service.
PaineWebber Inc. tentatively priced $105 million of noncallable Maine general obligation bonds.
The offering included $55 million general purpose bonds priced to yield from 3.60% in 1994 to 5.40% in 2002. There was $18 million of taxable general purpose bonds priced at par to yield from 4.25% in 1994 to 7.15% in 2002, or from 25 basis points over comparable Treasury yields in 1994 to 70 basis points over comparable Treasuries in 2002. Finally, $33 million highway bonds were priced to yield from 3.60% in 1994 to 5.40% in 2002.
The bonds are rated Aa1 by Moody's and AA-plus by Standard & Poor's.
In secondary dollar bond trading, prices were mixed,with some bonds posting slight gains, while others lost ground.
In late action, Seattle Sewer Authority revenue of 6s 2032 were quoted at 98-3/8 to yield approximately 6.13% on the bid-side, Massachusetts Municipal Wholesale Electric 6 1/8s of 2019 were quoted at 95 3/4-96 1/2 to yield 6.46%, and Puerto Rico general obligation 6s of 2022 were quoted at 97 1/2-98 to yield 6.46%.
In the short-term note sector, yields were mixed on the day, traders said.
In late action, Iowa Trans were quoted at 3% bid, 2.95% offered, Los Angeles Trans were quoted at 2.95% bid, 2% offered, and Wisconsin notes were quoted at 2.85% bid, 2.80% offered.