"Ugly" was the adjective du jour yesterday as municipal bond prices lost another point. Treasuries, meanwhile, incurred only minor losses.
"There are zero buyers and lots of redemptions, and just one hell of a negative sentiment," one municipal trader said. "It just doesn't stop -- it seems like you can't give bonds away." In light secondary activity, yields on highgrade issues rose seven basis points overall, and by as much as 10 basis points on the long end. Dollar bonds lost 1 1/4 points, a municipal analyst said.
"I think more than anything else it's demoralization," the analyst said. "Everybody is bidding way back to miss, so the bids you see are way off."
In debt futures, the December MOB spread closed down 20/32 to 81 1/2. Yesterday's December MOB spread was negative 473, compared with negative 451 on Friday. The 30-year Treasury bond closed down nearly 1/8 to yield 8.16%.
Overall, 1994 has not been a kind year for the municipal bond market.
"How many times did we talk about finding a bottom, and a bottom never came?" said one trader. "You ended up with just lower and lower prices exacerbated by the fact that discounts are so out of vogue now with the change in the tax law."
The trader noted that just over a year ago, 30-year Treasury bonds were yielding 5.78%. Now investors have to go out only six months to get a comparable yield.
"When the Fed is all done, they may be able to get that yield on Fed funds," he said. The Fed funds rate is currently 3/4%.
The trader gave a few reasons for at least some optimism ahead. He sees increased tax swapping from individuals as the year draws to a close, and said a large number of bonds will be exiting the market through redemptions on Jan. 1. The market has also seen new-issue volume decrease dramatically, "and it will probably continue that way," the trader said.
According to The Bond Buyer's MuniView, a total of roughly $20 billion of bonds will be leaving the municipal bond market in January through current refundings, advance refundings, maturing bonds, and maturing notes.
In the new-issue market this week, players will focus on tomorrow's $1.3 billion New York City offering through Merrill Lynch & Co. Market sources said the $750 million fixed-rate portion was being marketed on an extremely preliminary basis to retail investors at a top yield of 7.30% in 2021.
Yesterday, Moody's Investors Service affirmed the city's Baal general obligation bond rating in conjunction with the sale. On Friday, Standard & Poor's Corp. and Fitch Investors Service assigned an A-minus rating to the new bonds and affirmed the city's outstanding general obligation debt at the same rating.
"New York City recently announced measures to address a large mid-year budget gap as part of the October modification of the 1995 to 1998 financial plan. The gap-closing plan is commendable for its relative absence of one-time measures," Fitch said in a release.
The rating agency also added a cautionary note: "While the plan overall appears to be achievable, it contains significant risks including potential additional revenue shortfalls relating to the downturn in the securities industry having a broader effect than currently anticipated."
In other rating action yesterday, Moody's upgraded to Baal from Baa the special tax revenue bonds of the Philadelphia Intergovernmental Cooperation Authority.
The upgrade comes as PICA, Philadelphia's fiscal oversight agency, is expected to bring its last issue to market later this month. The issue will total about $100 million of bonds and will finance capital projects for the city.
PICA debt is backed by a 1.5% tax on wages, salaries, and net profits earned by Philadelphia residents.
The 30-day visible of municipal bonds yesterday totaled $3.66 billion, down $92.9 million from Friday. That comprises $1.419 billion of competitive bonds, up $122.7 million from Friday, and $2.24 billion of negotiated bonds. down $215.7 million.
Standard & Poor's Corp.'s Blue List of municipal bonds was down $37.1 million yesterday to $2.219 billion.
(Editor's Note: Sunday, in her first full-length marathon she'd already won medals at the 5K and 5 mile distances and running over bridges and roads built by bonds, municipal market columnist Kathie O'Donnell clocked a 3:37:43 time for the 26.2 miles of the New York City Marathon. That qualifies O'Donnell for the Boston Marathon next April. Congratulations, Kathie.)