Tax-Free Prices Extend Advance In Light Trading Ahead of Holiday

Municipal prices finished at the top of the range yesterday as investors continued to show strong interest in tax-exempt bonds, despite holiday doldrums.

Traders quoted dollar bonds 1/4 to 3/8 point higher on the day, while high-grade serial yields fell five basis points on average. It was the second straight session during which tax-exempt prices have posted modest gains.

Treasury prices continued their upward trend, breaking through the 8% level to 7.98%, pulling municipals along with them. The long bond yield backed up over 8% late in the day on stronger-than-expected money supply figures. The markets shrugged off news that initial state unemployment insurance claims fell 9,000 to a seasonally adjusted 421,000 in the week ended Aug. 17.

Trading was brisk in the morning session, and market participants reported several sizable blocks changing hands. Municipal Assistance Corp. 5 1/2s of 2008 traded at 6.75%, a source said, while long New York City taxable bonds were quoted around 10.45%.

In the debt futures market, the September municipal contract settled up 9/32 to 93.31 with the MOB spread narrowing further to negative 153.

"The demand is there," one New York trader said. "We did some good business, considering the upcoming holiday, and the market seems like it's in good shape. The economic data today seem to point to weakness, and now it's a question of whether or not these levels hold and we get an ease."

The market will be watching for unemployment data next week, hoping that weak numbers will prompt a further Federal Reserve easing. Bolstering hopes for an ease, the new home sales report released yesterday showed an 8.5% drop in July, while the June gain was revised down to 4% from the 7.4% jump reported last month.

In light new-issue activity in the short-term sector, Chemical Securities Inc., as senior manager, priced $55 million Suffolk County, N.y., tax anticipation notes.

The notes are due Sept. 3, 1992 and were priced as 7.20s to yield 6.50%.

Fitch investors Service rated the issue F-2.

Joe Caputo, Suffolk County comptroller, reported the issue oversubscribed with retail investors taking down the majority of the loan.

An officer at Chemical said the notes were all placed with permanent investors and there would be no Street float.

In light activity in the long-term primary sector, Dillon, Read, senior manager for $220 million New York State Thruway Authority local highway and bridge service contract bonds, freed the issue to trade. The 6s of 2011 were quoted trading at 87 1/4-3/8 to yield 7.20%. They were formally priced earlier in the week at 86.82 to yield 7.28%.

In negotiated activity, the Massachusetts Industrial Finance Agency and underwriters Wednesday closed a $342.2 million refinancing and facilities expansion bond issue for the shred and burn SEMASS Resource Recovery Facility in Rochester, Mass.

Prudential Securities was the lead underwriter and placement agent for the issue, which consisted of $255.6 million of tax-exempt, 24-year bonds, $61.6 million of taxable bonds and $25 million in taxable subordinated notes.

The major portion of the financing consisted of $145.6 million non-AMT and $110 million alternative minimum tax revenue bonds. The non-AMT bonds were priced at par to yield 9%. The AMT bonds were priced at par to yield 9.25%.

The $61.6 million of taxable bonds were priced at par to yield 11.25% and the subordinated notes were priced at par to yield 13.2%.

The issue was nonrated.

The major portion of the tax-exempt bonds were purchased by bond funds, according to Greenwich Partners, Inc.

The SEMASS bond issue will refund $178.6 million of outstanding debt and provide approximately $160 million for the expansion of the existing SEMASS plant, which began commercial operation in February, 1989.

In follow-through business, Goldman, Sachs & Co., senior manager for $602 million California various purpose taxable general obligation bonds, reported an unsold balance of $244 million.

Dillon, Read & Co., senior manager for $120 million Maryland Department of Transportation, consolidated transportation revenue bonds, reported all bonds sold and the account closed.

Prudential Securities, senior manager for $97 million Wisconsin general obligation bonds, reported an unsold balance of $35,000 late in the session.

In secondary dollar bond trading, last week's New Jersey Turnpike Authority 6.90s of 2014 were quoted up 1/8 point on the day to 99 1/2-1/2 to yield 6.94%. The more seasoned Turnpike 7.20s of 2018 were unchanged at 102 7/8-103 to yield 6.67% to the 1999 par call.

In other dollar bond activity, Florida State Board of Education 7 1/4s of 2023 were up 1/4 to 103 1/2-3/4 to yield 6.80% to the 2004 par call. New York LGAC 7s of 2016 were up 1/4 to 98 5/8-7/8 to yield 7.09%. Puerto Rico Electric Power Authority 7s of 2021 were unchanged at 99 1/4-3/8, where they returned 7.13%. And Colorado River Authority insured 6 5/8s of 2021 were up 1/8 to 97 1/4-1/2 to yield 6.82%.

Short-term note yields sank about five basis points on the day.

In late secondary trading, March California notes were quoted at 4.50% bid, 4.45% offered, while June California notes were quoted at 4.55% bid, 4.50% offered. March New York State tax and revenue anticipation notes were quoted at 5.14% bid, 5.12% offered.

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