Inflation data humbled the markets yesterday, and municipals gave back Tuesday's gains of 1/4 to 3/8 point, forcing underwriters to adjust new-issue yields by about five basis pints.
The producer price index for finished goods jumped 0.7% in October, its largest monthly advance in a year and far higher than the 0.1% the markets had expected. Treasury prices plummeted as much as 1 3/8 point in shock, but tax-exempts lagged once again.
Traders quoted dollar bonds down 1/4 to 3/8 point, while highgrade yields rose five basis points on average.
In the debt futures market, the December contract settled down 15/32, to 95.08, and the December MOB spread narrowed to negative 155.
Trading was light ahead of today's consumer price index report, but the primary sector continued to dominate action. The Bond Buyer's 30-day visible supply totaled $4.8 billion yesterday, the 14th consecutive business day the total has been higher than $3 billion.
The market downturn yesterday forced underwriters to bring deals with yields about five basis points higher than originally planned, market players said.
In the negotiated sector, Merrill Lynch & Co. as senior manager priced $491 million of California State Public Works Board lease revenue current interest bonds for the Department of Corrections.
A Merrill officer said the price would remain the same, but that a 2017 term maturity had been added and made noncallable, which opened the way for some new buyers. The officer said the issue saw priority business on the serial bonds, and almost all of the 2019 and 2021 bonds were done on priority, but that there would be some availability in the 2008 and 2011 maturities.
The offering included serial bonds priced to yield from 5% in 1994 to 6.35% in 2005.
A 2008 term is priced as 6.40s to yield 6.50%; a 2011 term is priced as 6.50s to yield 6.60%; a 2017 term is priced as 6.50s to yield 6.60%; a 2019 term is priced as 6.50s to yield 6.70%; and a 2021 term is priced as 5.75s to yield 6.60%.
The bonds are rated double-A by Moody's Investors Service, Standard & Poor's Corp., and Fifch Investors Service.
In other action, Morgan Stanley & Co. priced and repriced $103 million of Indiana State Office Building Commission correctional facilities program revenue bonds. Yields were raised two to four basis points from 2004-2016.
The final pricing included serial bonds priced to yield from 5% in 1994 to 6.425% in 2004.
A 2007 term is priced to yield 6.676%, a 2011 term is priced to yield 6.771%, and a 2016 term is priced to yield 6.796%.
The bonds are rated conditional A1 by Moody's and provisional A-plus by Standard & Poor's.
In the competitive sector, Morgan Stanley won $225 million of New York State general obligation bonds with a true interest cost of 6.3477%. Morgan reported an unsold balance of $86 million near the end of the session. The bonds were priced to yield from 4.50% in 1992 to 6.80% in 2021.
The issue received bids from Lehman Brothers; Donaldson, Lufkin & Jenrette Securities Corp.; and Goldman, Sachs & Co. with TICs of 6.3831%, 6.3851%, and 6.4384%, respectively.
The issue is rated A by Moody's and Standard & Poor's.
New York last tapped the market on July 31 with a $191 million competitive offering. Chemical Securities bought the issue with a TIC of 6.665% and priced the bonds with a maximum yield of 6.85% in 2021.
Seven bidders vied for $93 million of Dallas waterworks and sewer system revenue refunding bonds. Merrill Lynch won the issue with a net interest cost of 6.0096%. The bonds were reoffered to investors at yields ranging from 4.20% in 1992 to 6.60% in 2011.
Merrill reported an unsold balance of $52 million by the end of the session.
In secondary-market trading, activity was once again light as new issuance took precedence.
"There weren't any heroes out there today who were willing to take a chance," one trader said. "We gave Tuesday's gains right back."
Secondary dollar bonds were quoted down 1/4 to 3/8 point on average.
Denver Airport 7 3/4 of 2021 were quoted at 93-3/4 to yield approximately 8.32%. North Carolina Eastern 6 1/2s of 2017 were quoted at 96 7/8-97 to yield 6.74%. Washington Public Power Supply System 6 7/8s of 2017 were quoted at 99 1/4-5/8 to yield 6.9%, and Massachusetts Water Resources Authority 6 1/2s of 2019 were quited at 95 1/8-3/8 to yield 6.87%.
In short-term note trading, yields also gave back yesterday's five basis point gain.
In late secondary-market trading, Los Angeles Trans were quoted at 4.10% bid, 4.05% offered. March New York State Trans were quoted at 4.95% bid, 4.90% offered, as were New York City Rans. Texas notes were quoted at 4.10% bid, 4.05% offered in late cash trading.
Smith Barney, Harris Upham & Co. tentatively priced $41 million of Leon County, Fla., general obligation refunding bonds.
The offering included serial bonds priced at par to yield from 4.29% in 1992 to 6.45% in 2008.
The bonds are rated A1 by Moody's and A-plus by Standard & Poor's