More buyers than sellers pushed some municipal prices up a 1/4 point yesterday in otherwise quiet trading.
Investors began bracing themselves for next week's continued onslaught of new municipal debt.
According to market sources, heavy forward supply and uncertainty about the monetary situation in Europe played the most significant role in the struggle this week: Municipal prices spent the better part of the week on a downslide.
But another contributing factor triggering the two-point decline this week was the presence of one of the largest lists of bonds out for the bid this year.
The New Jersey-based insurance company, Crum & Forster Inc., a subsidiary of Xerox Financial Services, circulated on Tuesday a list of 54 different bonds totaling over $180 million out for the bid.
Dominick Bonanno, managing director at Crum & Forster, confirmed yesterday that the insurer had circulated the list, but would not specify how the proceeds from the sale of those bonds would be spent.
The list was replete with some heavily traded names. Included was an $11 million block of New Jersey Turnpike Authority 53/4s of 2011; $6 million Broward Co., Fla. Hospital MBIA-insured 6 3/4s of 2006; $5 million Alameda Co., California 6 1/4s of 2006; $5 million North Broward Hospital District 6 1/4s of 2006; $5 million New York State Triborough Bridge and Tunnel Authority FGIC-insured 6.20s of 2008; and a $5 million block of Lancaster Co. Hospital Authority, Penn., 6s of 2007.
"The word on the street was that Crum & Forster was selling the bonds to cover outlays from Hurricane Andrew," said the head of a trading desk.
The same day these bonds went out for the bid, the market was faced with record-high 30-day visible supply, although the bonds were eventually absorbed by investors. The action called into question what role insurance companies will play in the municipal market in the coming months, municipal participants said.
George Friedlander, managing director and chief fixed-income strategist at Smith Barney, Harris Upham & Co., said underwriters had hoped that insurance companies would be able to absorb a lot of the supply. But those hopes were "thwarted by Andrew," he observed.
"Insurance companies have been trading around in the municipal market," Mr. Friedlander said. "But they really haven't been adding a whole lot of paper to their long-term portfolios."
"The position these companies are in now, really hurts their ability to add municipals to their portfolios," said the head of a trading desk. "With supply so thick, underwriters were hoping every possible investor gets in the game."
Crum & Forster are not the only, and are by no means the largest, insurance company whose municipal holdings may be affected as a result of Hurricane Andrew and Hurricane Iniki, according to a trader.
Other underwriters that could be adversely affected by large claims include Allstate Insurance Co., State Farm Insurance Co., Guardian Life Insurance Co. of America, and Ohio Casualty Corp., according to the trader.
Continued concerns about the European monetary situation continued yesterday, as the Treasury market's uncertainty rubbed off on municipal investors.
They were also greeted with a mixed bag of economic news yesterday morning.
Initial claims for unemployment benefits rose 6,000 to 400,000 in the week ending Sept. 5.
The U.S trade deficit grew 16.2% in July, to $7.8 billion. This represented the, largest single-month deficit since January, 1990.
After spending all this week over $8 billion, visible supply fell almost $1 billion yesterday to $7.68 billion.
This assuaged some of the concern about supply, but one trader said supply "came right back up and hit us in the face" late in the day.
Yesterday afternoon, Smith Barney announced they are planning to sell $1.45 billion North Carolina Eastern Municipal Power Agency power system revenue bonds next week.
The December municipal futures contract settled Up 3/32, to 96.14 and the December MOB spread was measured at a negative 287.
Primary Market Slows
After two days of frenetic action, the primary market settled down yesterday, as investors looked toward next week's continued heavy slate of deals.
Yesterday's largest deal was the competitive sale of $114 million Puerto Rico Telephone Authority revenue bonds. The offering was won by Lehman Brothers with a true interest cost of 6.191%.
The loan contained serial bonds priced to yield from 6% in 2007 to 6.15% in 2013.
There were also two term bonds. The first matures in 2020, contains $56 million of the total loan and was not formally reoffered to investors. The second term matures in 2022 and was priced as 6 1/8s to yield 6.20%.
The offering was rated A by Moody's Investors and A-plus by Standard & Poor's Corp.
Lehman Brothers reported the deal was sold out within a half-hour of winning the bidding.
Secondary traders said there was little activity yesterday with prices unchanged to a 1/4 point higher.
In heavily traded names, Chicago GOs AMBACs 57/8s of 2022 were quoted at 93 3/4-941/4, to yield 6.34%; Puerto Rico GOs 6s of 2014 were quoted at 95 3/4-96, to yield 6.36%; and New York City Water Authority 6s of 2017 were quoted at 94 1/4-94 1/2, to yield 6.46%.
In the short-term sector, traders said that yields were mixed but that activity was extremely quiet.
In late secondary action, Los Angeles Trans were quoted at 3.10% bid, 3.08% offered; Texas Trans were quoted at 3.09% bid, 3.07% offered; Wisconsin notes were quoted at 3.12% bid, 3.10% offered; and New York State Trans were quoted at 3.20% bid, 3.15% offered.