Municipal prices rose 3/8 point on average and more in spots yesterday, but over $1 billion of new deals achieved only mixed results as the market remained vulnerable to supply pressure.
Market players reported a much improved tone yesterday as bond prices benefited from economic news and a break from new issuance, despite weakness in the value of the dollar.
The credit markets improved early in the day after the National Association of Purchasing Management's index fell to 53.7% in August from 54.2% in July.
A reading above 50% indicates the manufacturing economy is generally expanding, while a reading below 50% indicates it is declining.
Of lesser concern, but still favorable for bonds, was the Commerce Department's reports that the composite index of leading economic indicators increased 0.1% in July to 149.6, while construction spending in July decreased 0.6%, the second consecutive monthly decline.
Trading was light throughout the day, but by session's end prices were quoted up 1/4 point on average and as much as 1/2 to 5/8 point for more actively traded bonds, including New York City and Puerto Rico bonds.
In the debt futures market, the December contract settled up 14/32 to 96.18, while the MOB spread widened to negative 256 from negative 254 Monday.
The market has eked out slight gains for the last four sessions, allowing the Street to work through some of the deals brought on last week's price declines by flooding the primary in August.
Reflecting improved selling to permanent investors, The Blue List of dealer inventory fell $55.2 million to $1.44 billion.
Yesterday's decline marks the fifth consecutive drop, down from $1.83 billion Aug. 26, a decline of $387 million, or 21%.
But forward supply continued to grow as issuers queued up for the primary sector in hopes of catching still-low rates. In addition, the negotiated calendar is loaded with deals that were postponed last week due to unstable market conditions.
The Bond Buyer's 30-day visible supply rose to $5.88 billion yesterday, and there were 22 deals on a "day-to-day" basis.
"The market is definitely feeling better, but there's no real depth to it and people don't want to jump right in because they don't trust it," said one trader. "We all know the shadow calendar is impressive and the Street needs this week to recover. One bad deal could cause the market to collapse."
Market players said that today's sale of $167 million of New York State Thruway Authority bonds could be the deal that makes or breaks the current market.
Late yesterday, traders said they expected the deal to be priced with a maximum yield of 6.60% for bonds due in 2012.
Negotiated New issues
New issuance was heavier yesterday than the last several sessions and results appeared to be mixed.
A syndicate led by First Boston Corp. as senior manager priced and repriced $224 million of Michigan State Housing Development Authority rental housing revenue bonds.
Yields were raised by 10 basis points from 1998 through 2006 late in the day.
The final reoffering scale included serial bonds priced at par to yield from 4.10% in 1994 to 6.50% in 2006. A 2012 term, containing $66 million of the loan, was priced at par to yield 6.60% and a 2023 term, containing $61 million of the loan, was priced at par to yield 6.65%.
Moody's does not rate the issues. The bonds are rated A-plus by Standard & Poor's.
In the short-term note sector, Merrill Lynch & Co. priced and repriced $155 million of Philadelphia School District tax and revenue anticipation notes.
At the repricing, the reoffering yield was lowered by 10 basis points.
The final pricing included notes priced as 4s to yield 3.45%, due June 30, 1993.
The issue is rated MIG-1 by Moody's, SP-1 by Standard & Poor's, and F-1 by Fitch.
Returning to the long-term sector, Smith Barney, Harris Upham & Co. tentatively priced $130 million of Clark County, Nev., industrial development revenue bonds for the Southwest Gas Corp.
The offering included $30 million of Series A bonds priced at par to yield 7.30% in 2027. There also was $100 million of Series B bonds, subject to the federal alternative minimum tax, priced at par to yield 7.60% in 2032.
The issue is rated Ba2 by Moody's, and triple-B minus by Standard & Poor's and Duff & Phelps.
Merrill Lynch tentatively priced $101 million of New Hampshire GO capital improvement and refunding bonds.
The offering included serial bonds priced to yield 3% in 1993 to 6.10% in 2007. A 2012 term, containing $11 million of the loan, was priced as 5 1/2s to yield 6.20%.
The bonds are rated double-A by Moody's, Standard & Poor's, and Fitch.
Dominating the action, J.P. Morgan Securities won $100 million of Denver City and County unlimited tax GO various purpose bonds with a true interest cost of 5.6268%.
The firm reported an unsold balance of $4 million late in the session.
Serial bonds were priced to yield from 2.90% in 1993 to 6.05% in 2007.
The issue is rated double-A by Moody's and Standard & Poor's.
An issue of $60 million of noncallable Clark County, Nev., highway revenue improvement bonds was won by Clayton Brown & Associates; Prudential Securities; Kidder, Peabody & Co.; Kemper Securities; and Griffin, Kubik, Stephens & Thompson as co-managers.
Late in the day, the bonds were reported all sold.
The bonds, won with a TIC of 5.469%, were reoffered to investors at yields ranging from 2.90% in 1993 to 5.75% in 2003.
The issue is insured by AMBAC Indemnity Corp. and triple-A rated by Moody's and Standard & Poor's.
Traders reported increased activity yesterday, but added that no big moves were made.
In secondary dollar bond trading, Chicago GO AMBAC 5 7/8s of 2022 were quoted at 93 1/4-94 to yield approximately 6.38% on the bid-side, Puerto Rico GO 6s of 2014 were quoted at 96-1/2 to yield 6.34%, and Florida Board of Education 6s of 2022 were quoted at 96 3/4-97 to yield 6.24%. Los Angeles Department of Water and Power 6s of 2032 were quoted at 95 1/2-96 to yield 6.30% and New York City Water Authority 6s of 2017 were quoted at 94 3/4-lock to yield 6.42%.
In the short-term note sector, yields were mixed on the day, traders said.
In late action, Los Angeles Trans were quoted at 3.10% bid, 3.05% offered, New York City tax anticipation notes were quoted at 3.05% bid, 2.95% offered, and New York State Trans were quoted at 3.13% bid, 3.10% offered. Texas Trans were quoted at 3.10% bid, 3.05% offered and Wisconsin notes were quoted at 3.09% bid, 3.05% offered.