Nervous selling pushed some yields higher for the second session in a row yesterday as the market eased off its recent highs.
The market paused in the morning when economic data were released, but the Street decided the numbers were in line with expectations and shrugged off the reports.
Retail sales increased 0.5% in June, to a seasonally adjusted $159.8 billion, thanks to a surge in automobile sales, the Commerce Department reported.
Excluding autos, June sales were up only 0.1%, following a revised gain of 0.2% in May, originally reported as a 0.4% gain.
Meanwhile, the consumer price index for all urban consumers rose 0.3% in June, due primarily to a 2.0% climb in energy prices.
Soon after the data were released, several retail houses reported customer selling. Some prices fell about 1/4 point.
Although the selling was orderly, and the Street reportedly picked up much of the bonds that were sold, traders reported an uneasy market tone for the second session in a row.
"The market has had a long run-up, and people who jumped in late are nervous," a trader said. "If we're down another quarter [today] we may have to cheapen offerings to get bonds sold. We're overdue for a correction, it's just a matter of how much."
Meanwhile, other market players said that a suffering economy and strong demand for new issues will buoy prices at least until the August Treasury refunding.
"We may be suffering from a little nervousness because of high levels, the weakness in the dollar, and the fear of a hike in German interest rates," said James L. Kochan, head of fixed-income research at Robert W. Baird. "But after the air clears the market should do better, because we still have very favorable economic data for bonds, mainly, low inflation and slow growth."
Bullish traders noted, in light of a bright long-term outlook, there is support for bonds at slightly cheaper levels.
"Overall there wasn't a change in market psychology," another trader said. "Looks like we might have some downside, but if prices fall buyers will jump in."
Prices finished mixed on the day, with some bonds posting slight gains against 1/4 point decliners.
In the debt futures market, the September municipal contract settled unchanged at 97.15.
In new-issue activity in the negotiated sector, a syndicate led by Bear, Stearns & Co. and Lehman Brothers priced $150 million of Pennsylvania Higher Education Assistance Agency student loan revenue bonds as a derivative financing.
Lehman Brothers priced $60 million Series A select auction variable-rate securities and $60 million of residual interest bonds as 9.30s to yield 6.227% but exact pricing details were not available before press time.
Meanwhile, Bear Stearns priced $30 million of fixed-rate bonds, subject to the federal alternative minimum tax, as 6.40s at par in 2022.
The offering is insured by the AMBAC Indemnity Corp. and triple-A rated by Moody's Investors Service and Standard & Poor's Corp.
In other action, Chemical Securities as senior manager tentatively priced $142 million of Missouri High Education Loan Authority student loan senior lien revenue bonds and student loan subordinated lien revenue bonds.
The $82 million Series A bonds were priced to yield from 4.50% in 1995 to 5.75% in 2002.
About $53 million Series B bonds, subject to the AMT, were priced to yield from 3.20% in 1993 to 5.95% in 2003.
Finally, $6 million subordinated bonds, also subject to the AMT, were priced as 6 1/2s par in 2006.
The issue is rated Aa by Moody's.
A syndicate led by Stone & Youngberg tentatively priced $116 million Orange and Viejo counties, Calif., Community Facilities District No. 88-1 special tax bonds.
The offering included serial bonds priced at par to yield from 5% in 1995 to 7.15% in 2007. A 2018 term, containing $84 million of the loan, was priced at par to yield 7.25%.
The bonds are not rated.
First Boston priced and repriced $87 million of Muscatine, Iowa, electric revenue refunding bonds.
The 2012 term bond yield was lowered by about eight basis points.
The final reoffering scale included serial bonds priced to yield from 3.20% in 1993 to 5.60% in 2001. A 2012 term was priced as 6 1/8s to yield 6.213%.
The issue is AMBAC-insured and triple-A rated by both Moody's and Standard & Poor's.
California paper led a string of bid-wanteds that were circulating in the Street, traders said, including a list in the $21 million range, made up of 6% coupon paper. Traders also reported smaller blocks out for the bid, including $5 million California Water Authority 6s of 2020 and $15 million Connecticut special tax revenue 6 1/4s of 2009.
In secondary dollar bond trading, prices were quoted unchanged to down 1/4 point in spots.
In late action, Salt River, Ariz., 5 1/2s of 2025 were quoted at 89 7/8-90 to yield 6.22% on the bid-side, New York City Water Authority AMBAC 6.20s of 2021 were quoted at 98 7/8-99 1/8 to yield 6.28%, and Texas Municipal Power Authority MBIA 5 3/4s of 2012 were quoted at 94 3/4-7/8 to yield 6.21.
PaineWebber Inc. priced and repriced $59 million of West Virginia GO highway refunding bonds to lower serial yields by five basis points from 1997 to 2006.
The offering included non-callable serial bonds priced to yield from 2.75% in 1993 to 5.95% in 2006.
The bonds are rated A1 by Moody's, A-plus by Standard & Poor's and Fitch.
PaineWebber also priced and repriced $41 million North Carolina Medical Care Commission hospital revenue bonds for the Memorial Mission hospital.
Serial bond yields were lowered by 10 basis points, the 2012 term bond yield was lowered by two basis points, and the 2022 term bond yield was lowered by three basis points. Capital appreciation bond yields were lowered by five basis points.
The final reoffering included serial bonds priced at par to yield from 4.25% in 1995 to 5.70% in 2003. A 2012 term was priced as 6s to yield 6.13% and a 2022 term was priced as 6s to yield 6.202%. Capital appreciation bonds were priced to yield 6.10% in 2004, 6.20% in 2005, and 6.25% in 2006.
The bonds are insured by FSA and triple-A rated by Moody's, Standard & Poor's, and Fitch Investors Service.