The primary sector stepped to the forefront of the municipal market yesterday as several large deals entered an arena hungry for tax-exempt paper.
Municipal prices were up about 1/4 point in some spots yesterday, with high-grades finishing the session mixed.
Traders reported that there were several large blocks of bonds available during the morning session, although the blocks were not as large as those available on Tuesday. During Tuesday's action, there were over $400 million in customer bid lists available. Yesterday, that figure had declined to about $100 million.
Market participants attributed the slowdown in the lists to the observance of Yom Kippur and the returned focus on the primary sector. Yom Kippur began at sundown yesterday and will end at sundown today.
Also, the one major indicator of the day, retail sales, did not move the market in any significant manner.
The Commerce Department reported yesterday morning that retail sales rose 0.8% during August, a larger increase than economists expected.
The jump in the sales figure came after July's reading of down 0.1%. The Commerce Department said that automobile, furniture, and building material sales all increased during the month.
Despite the gain, the Treasury market did not react immediately. Late in the New York session, the Treasury's benchmark 30-year bond was up 5/32 to yield 7.66%.
"Initially there was a little bit of a sell-off from the [retail sales] number," said Marylin Schaja, economist at Donaldson, Lufkin & Jenrette. "The number was a strong improvement in sales, but the markets rebounded throughout the day."
Schaja said that market players realize that the economy is strengthening, and that current levels in both Treasuries and municipals are in line with that strength.
As long as inflation does not show sustained growth, she said, then the markets can feel comfortable in this range.
"Inflation is not perceived to be a real serious problem at this time," Schaja said. "The economy appears to be healthy without the problems of inflation."
Schaja said that she expects the Yom Kippur observance to put the brakes on a lot of the trading, but she said that today's release of the Philadelphia Federal Reserve report still could serve to move the markets.
"We have seen markets moved significantly during periods of low volume," she said.
In the primary sector, there were several large deals priced yesterday.
The largest deal of the day was a $300 million Washington State general obligation offering won competitively by a group with Merrill Lynch & Co. as lead manager.
The bonds were won with a true interest cost of 6.05%. The loan included serial bonds reoffered to yield from 4.80% in 1998 to 6.24% in 2016.
There was also a term bond maturing in 2019 that was reoffered as 5 3/4s to yield 6.25%.
Three maturities, in 1995-1997 were not formally reoffered to investors.
J.P. Morgan & Co. had the cover bid on the issue with a TIC of 6.0834%.
The bonds were rated double-A by Standard & Poor's 'Corp., Moody's Investors Service, and Fitch Investors Service.
Late in the session, a member of the Merrill Lynch underwriting team said the financing had an unsold balance of about $108 million.
Also offered competitively was an issue of $150 million of Port Authority of New York and New Jersey consolidated revenue notes, Series SS. The notes were won by a Lehman Brothers group with a true interest cost of 4.94486%.
The issue was rated MIG-1 by Moody's and SP-1 by Standard & Poor's.
Lastly, on the competitive side was an offering of $102 million of Columbia Industrial Development Board, Ala., pollution control revenue refunding bonds for the Alabama Power Co. project.
The loan was won by a group, with Robinson-Humphrey Co. as lead manager, with a true interest cost of 6.635%. The entire issue matures in 2023 and was reoffered at par to yield 6.25%.
In near-silent negotiated action, the largest deal of the day was a $60 million Ohio Housing Finance Agency offering.
Most market watchers said yesterday that Yom Kippur will more than likely muffle the market even more than it had been earlier in the week.
There are no deals over $100 million on either the competitive or the negotiated calendars for the remainder of this week.
Yesterday, Standard & Poor's reported that the Blue List, which tracks dealer inventory, was down $10.9 million to $1.67 billion.
Municipal supply for the next 30 days was down $37.8 million to $3.06 billion.
The December municipal futures contract ended the day up 12/32 at 88.20.
In actively traded dollar bonds, Florida BOEs 6.10s of 2024 were quoted at 97 5/8-7/8, to yield 6.28%; Salem Co., New Jersey pollution control revenue bonds 6 1/4s of 2031 were quoted to yield 6.44% to 6.40%; and Dade Co., Florida Aviation Authority AMTs 6.20s of 2024 were quoted at 97 1/2-98, to yield 6.39%.