Renewed buying interest pushed municipal bond prices up 1/2 point overall yesterday as participants waited for today's $785 million of New York City bonds and $4 billion of California revenue anticipation warrants.
"Our market seems to be pretty strong," a municipal trader said. Yesterday's active session saw dollar bond prices climb 1/2 to 5/8 point, while yields on high-grade issues fell by nearly five basis points, a municipal analyst said.
In debt futures, the September municipal contract climbed 21/32s to 91 15/32s. Yesterday's September MOB spread was negative 388, compared with negative 392 on Monday.
"I think that there's a lot of cash around, and I think you're seeing" some of it flushed out here," said a second municipal trader.
Funds have been accumulating money that needs to be spent, the trader said, adding that municipals are a "very finite" market.
The trader pointed to Standard & Poor's Blue List, which as of yesterday had fallen by $480 million since July 1, when the measure of dealer inventory was $2.02 billion.
"I think the drop is indicative that the money is being put to work," the trader said.
As the fear surrounding a Federal Reserve tightening ebbed, and the Treasury's 30-year bond broke through 7.49% yesterday following a few weeks of trying, municipals "were off to the races," the trader said. The government's long bond closed up 3/8 point to yield 7.46%.
While Fed worries remain, as does pressure on the U.S. dollar, the market eventually gets used to troubling factors, the trader said.
"What happens with bad news is that even if bad news sticks it works its way into the pricing," the trader said.
Robert W. Chamberlin, a senior vice president and supervisory municipal analyst at Dean Witter Reynolds Inc., said the pickup in the new deal pace reflects "a glimmer of hope" now threading through the municipal market.
The bond market is realizing that a Fed tightening of credit is not as imminent as the market had feared it would be after the Fourth of July. Diminishing the fear is the bond-friendly economic picture painted by some recent reports.
The most recent retail sales figures came in on the weak side, and both the consumer and producer price indexes showed a non-inflationary environment, Chamberlin said. The market is also getting used to the volatility in the Commodities Research Bureau's index, he said.
"It's sort of sinking in in the municipal area as well," Chamberlin said.
The analyst also pointed to renewed interest from funds.
"We are beginning to see some more bond fund interest," Chamberlin said. The cash has been available for sometime, but the institutions needed an atmosphere that was conducive to putting it to work, he said.
Turning to today's new issues, a Prudential Securities group will serve as senior manager on New York City's $785 million general obligation bond offering.
Expectations are for the city's deal to fetch a top yield of 6.50% in 2010 with a 6 1/4% coupon.
"I think they could get it done at a [top yield of] 6.40% or a 6.45%,"
Ron Fielding, president of Rochester Fund Municipals, said yesterday. While Fielding thinks the New York City deal is "attractively priced given current market conditions," he won't be a buyer. "It just doesn't fit my requirements of maturity," he said.
Though Rochester has money coming into its funds, Fielding said the influx is slow enough to allow him to hunt for better opportunities in the secondary market.
Another trader said he expects the New York City deal to be priced aggressively. "I think the city deal will probably be pushed a bit," he said.
Moody's Investors Service yesterday said it had reviewed and confirmed the city's Baal rating in conjunction with today's offering.
"The city's extended record of balancing annual operating budgets demonstrates both its ability to adjust effectively to short-term fiscal pressures and its commitment to maintain balanced operations, as required by law," a Moody's release said. "The city is again estimating balanced operations for the fiscal year that ended June 30, 1994."
Fitch Investors Service late yesterday affirmed the city's outstanding GOs at A-minus and assigned the A-minus rating to today's sale. The expected rating from Standard & Poor's Corp. is A-minus.
Also today, the market must digest California's competitive sale of $4 billion revenue anticipation warrants.
The 22-month California warrants mark the first portion of a two-part deal totaling $7 billion. Today's bidding will be done in Dutch auction form.
The remaining $3 billion of California revenue anticipation notes will be negotiated through Bank of America on July 27, she said.
In new issue action yesterday, PaineWebber priced and repriced $102 million Tarrant County, Tex., Health Facilities Development Corp. Health System revenue bonds. At the repricing, yields were lowered by five basis points from 1997 through 2002.
Also yesterday, a Smith Barney group priced $147 million Student Loan Finance Corp., S.D, student loan revenue bonds, series 1994-A. The offering consisted of serial bonds priced to yield from 5.30% in 1997 to 6.75% in 2010. There was no change from the preliminary pricing.
A Merrill Lynch & Co. group priced $100 million of Port Authority of New York and New Jersey consolidated bonds, Ninth Series.
The offering consisted of serial bonds priced to yield from 5.60% in 2005 to 6.25% in 2016. A 2022 term, containing $26 million, was priced to yield 6.30%. A 2029 term, containing $43.9 million, was priced to yield 6.35%. There was no change from preliminary pricing.
Elsewhere yesterday, Standard & Poor's Blue List of municipal bonds was up $67 million to $1.54 billion. The 30-day visible supply of municipal bonds for today totals $8.70 billion, up $179.6 million from yesterday.