Municipal prices were 3/4 to I point lower yesterday as forward supply and uncertainty about the presidential race continued their merciless battering of the tax-exempt market, an ordeal that many feel is far from over.
Market participants said activity was "lackluster" through most of the day as investors braced themselves for this week's slate of new deals.
Tax-exempt prices continued to be somewhat hurt by the faltering Treasury market, according to municipal traders.
But yesterday, the losses in municipals far overshadowed the 1/4 point fall in long Treasuries by late yesterday.
"The performance of the Treasury, market is more of a direct result of the election uncertainty, and that has helped along the fall of municipals," said Susan Peabody, senior vice president at Alliance Capital Management Corp. "Plus, municipals have been clobbered by supply."
Peabody also said there was another factor starting to affect the ratio of buyers to sellers: Many mutual funds' fiscal years end between October and December.
"The market's seeing a lot of tax swaps right now to offset gains made earlier in the fiscal year," she said.
"The municipal market has been held prisoner for the last couple of weeks." said a trader. "Pressures from the government market, heavy supply, and the unstable world currency market have all played a part in our downfall."
Another market participant said the market is bracing for another large list of bonds this afternoon of "mainly blocks of insured Texas paper."
The trader said the current atmosphere has "turned buyers into sellers for the first time all year."
"Mutual funds, especially, have provided the market with some teeth for the last two years," the trader said. "Now, though, the Street has become responsible for maintaining levels and they are just too heavy with paper to stand on their own. "
A good indication of the Street's saturation in the secondary market was seen in The Blue List. Yesterday, the list continued to rise, standing at $1.94 billion.
Several market participants said the uncertainty of the presidential election have added to the skittishness of investors.
"As soon as it looks like Clinton has this thing in the bag, there's another poll showing that it's a much closer race," the trader said.
A New York Times/CBS News poll published on Sunday said that although Clinton still maintains a lead, President Bush and independent candidate Ross Perot are gaining.
However market participants said it will Cake more than the conclusion of the election season to solve the technical pressures afflicting the municipal market.
Yesterday, The Bond Buyer calculated 30-day visible supply at $8.58 billion.
This week's barrage of new municipal paper is scheduled to hit the primary market today and tomorrow.
Expected to be priced in the negotiated sector are issues of $500 million of Los Angeles Co. Transportation Commission Proposition C sales tax revenue bonds senior managed by Lehman Brothers; $165 million of Fulton County, Ga.. water and sewer revenue refunding bonds senior managed by Lazard Freres & Co.; and $160 million of Northern California power agency multiple capital facilities revenue refunding bonds senior managed by Lehman Brothers.
In the competitive sector, $180 million of Connecticut general obligation bonds are scheduled to be priced today.
SEC Ends Probe
The Securities and Exchange Commission has ended its investigation of alleged insider trading by First Boston Corp. in regards to a New York City bond refunding in March, according to an SEC letter. sent to city officials.
"Please be advised that the investigation has been terminated and that, at this time, no enforcement action has been recommended to the Commission," says the SEC letter, dated Oct. 24 and sent to lawyers representing First Boston Corp. and New York City.
New York City concluded its investigation of the firm earlier this year and said it found no evidence of insider trading.
The SEC probe focused on whether the firm intended to profit from the resale of $13 million of taxable city GO bonds to the city that the firm bought in the secondary market two weeks before a $1 billion refunding in March. The city was unaware that the firm had made the purchase at the time, city officials said.
"I think we're pleased and gratified with the SEC's decision to terminate the investigation," a spokesman for First Boston said. "We consistently said we acted properly with respect to this transaction."
No sector of the municipal market was left unscathed yesterday.
The December municipal bond futures contract settled down 14/32, to 93.09. The December MOB spread expanded to negative-293.
Rauscher Pierce Refsnes Inc. priced the day's largest deal: a $129 million issue of Texas Public Finance Authority building revenue and revenue refunding bonds Series 1992B.
The offering included serial bonds priced to yield from 3.60% in 1994 to 6.45% in 2008.
There was also a term bond maturing in 2012 and priced as 5 3/4s to yield 6.55%.
The offering was AMBAC-Insured and Triple-A rated.
Secondary traders reported a fairly muted day of trading as investors focused on the deals scheduled to be offered in the primary sector today and tomorrow.
By late in the session though, prices were anywhere from 1/2 point to 1 point lower.
In secondary bond trading, California GO 6 1/4s of 2019 were quoted at 6.73% bid, 6.68% offered; New York City Gos 7s of 2014 were quoted at 7.22% bid, 7.15% offered; and Washington Public Power Supply System 6 1/2s of 2015 were quoted at 96 1/4-97, to yield 6.79%.
Puerto Rico GO 6s of 2014 were quoted at 91 1/2-92 1/2, to yield 6.75%; Denver Airport Authority AMT 6 3/4s of 2022 were quoted at 93-93 1/2, to yield 7.331%; New Jersey Turnpike Authority 6 1/2s of 2016 were quoted at 99-3/4, to yield 6.58%; Jefferson Co., Colo., AMBACs 6s of 2012 were quoted at 93 1/2-94 1/2, to yield 6.59%.
In the short-term note sector, yields were five to 10 basis points higher on the day in listless trading.
In late trading, Los Angeles tax and revenue anticipation notes were quoted at 2.92% bid, 2.88% offered; New Jersey Trans were quoted at 2.92% bid, 2.88% offered; and Texas Trans were quoted at 2.92% bid, 2.88% offered.
Wellesley Bonds Sell Today
The Massachusetts Health and Educational Facilities Authority is planning to sell $20 million of variable-rate revenue bonds today, according to a representative of lead manager Morgan Stanley & Co.
The bonds will be used to finance improvements to the dormitories, telecommunications facilities, and a mainframe computer at Wellesley College in Wellesley, Mass. Wellesley College, whose students are all women, is located just outside Boston.
The bonds will mature in 2022 and the interest rate will be set by the remarketing agent, Morgan Stanley. The official statement states that if a remarketing fails or the bonds are put, then the college, not the authority, will back the bonds.
"This happens only when the college or institution has sufficient revenues or endowments to cover the payments," said Edward M. Murphy, executive director of the authority. "The only other colleges that have that ability, that we deal with, are Harvard University and the Massachusetts Institute of Technology." The college's endowment is near $350 million, Murphy said.