Strong Demand Sends Prices Up Despite Growth In New Issues
The municipal market remained firm yesterday, despite a growing new issue slate, as investor demand remained strong and prices continued to creep higher in light trading.
Underwriters still report strong investor demand for new deals, even though interest rates are hitting "sticker shock" levels as municipals remain attractive compared to other markets.
In negotiated new issue activity, Dean Witter Reynolds Inc. as senior manager tentatively priced and repriced $170 million of Arizona Transportation Board subordinated highway revenue bonds to drop the serial yields by five basis points.
A Dean Witter officer said the deal was oversubscribed by casualty companies and intermediate bond funds on the serial maturities and by bond funds on the terms. The issue also saw strong support from local Arizona retail customers, the officer added.
The final terms included serials priced to yield from 6.25 in 2003 to 6.60% in 2008.
A 2011 term, containing $84.5 million of the loan, is priced as 6 1/2s to yield 6.65%.
The bonds are rated Aa by both Moody's Investors Service and Standard & Poor's Corp.
In other action, senior manager George K. Baum tentatively priced $100 million of Denver Metropolitan Major League Baseball Stadium District, Colo., sales tax refunding and improvement revenue bonds.
The offering included serials tentatively priced to yield from 5.50% in 1996 to 6.40% in 2004.
Capital appreciation bonds are tentatively priced to yield from 6.50% in 2005 and 6.55% in 2006. A 2011 term, containing $43 million of the loan, is tentatively priced to yield 6.74%.
The bonds are insured by Financial Guaranty Insurance Co. and triple-A rated by both Moody's and Standard & Poor's.
The debt service on the bonds will be paid from project revenues and from a 20-year, one-tenth of a cent sales tax approved by Denver-area voters in August 1990.
The most recent similar deal was priced by the Gateway Economic Development Corp., a private non-profit organization set up by the City of Cleveland. It closed last year on a $148 million excise tax bond deal which will finance a new stadium there.
In addition, the City of St. Louis last year issued $72.4 million in multi-modal industrial revenue bonds backed by a letter of credit from Fuji Bank Ltd. through the St. Louis Industrial Development Authority.
The variable-rate bonds were sold to short-term institutional buyers.
Meanwhile, secondary prices remained firm, despite heavy issuance, with trades posting slight gains, traders said.
Traders also reported light bidwanted activity, although some small blocks of general market bonds were changing hands.
Market sources noted that a $3 million block of insured Texas 20-year 6 1/2 traded around a 6.75% net and block of New Orleans 6s moved up about five basis points from last week to around 6.74% net.
"It's got decent strength still," a trader noted. "It's been relatively quiet, but nothing traded dawn in here, even though we've got a lot of bonds coming."
The Bond Buyer's 30-day visible supply climbed to $3.83 billion yesterday - the highest level since Aug. 12, when it hit the $4.6 billion mark.
Standard & Poor's The Blue List of dealer inventory rose to $1.34 billion, up $363 million on the week.
In the debt futures market, the December municipal contract settled at the highs, closing up a modest 4/32 to 94.06 with the December MOB spread calculated at negative 162.
Quoted dollar bonds posted slight gains of 1/8 to 1/4 point.
Late Friday, New Jersey Turnpike Authority 6.90s of 2014 were quoted unchanged at 99 3/4-7/8 to yield 6.90%. New York LGAC 7s of 2021 were quoted unchanged at 99-1/8 to yield 7.07%, while New York LGAC 7s of 2016 were quoted up 1/8, to 98 1/8-3/8, to yield 7.05%. Puerto Rico Electric Power Authority 7s of 2021 were quoted up 1/8 point, to 100-100 1/4, where they returned 6.97. And Colorado River Authority insured 6 5/8s of 2021 were quoted up 1/8, to 97 5/8-98, to yield 6.78%.
In short-term note activity, yields fell as much as 10 basis points yesterday, and traders reported aggrassive buying by a large bond fund.
In late secondary trading, Pennsylvania 5 1/4 Tans were quoted at 4.50% bid, 4.50% offered, while Texas 5% Trans were quoted at 4.40% bid, 4.38% offered. March New York State Trans were quoted at 5.10% bid, 5.08% offered, and Los Angeles notes were quoted at 4.49% bid, 4.45% offered.
Prerefunded bonds were also firm yesterday, traders said.
Near the end of cash trading prerefunded bonds, callable in 1995, were quoted at 5.42% bid, 5.38% offered, while bonds callable in 1996 were quoted at 5.47% bid, 5.43% offered.
Goldman, Sachs & Co. as senior manager tentatively priced $189 million of Rhode Island Housing and Finance Corp. homeownership opportunity bonds as a remarketing.
The offering, subject to the federal alternative minimum tax for individuals, included a maximum yield of 7.10% in 2020 for non-AMT bonds.
Goldman said it expects a VMIG-1 rating from Moody's and an A1-plus rating from Standard & Poor's for the convertible option bonds. The firm expects an A1 rating from Moody's and a AA-plus rating from Standard & Poor's for the remainder of the issue.