A total of 48 bidders vied for $800 million of Texas short-term notes yesterday, which sold with a net interest cost of 4.609%, while secondary long-term prices continued to move in a narrow range.
Texas awarded the tax and revenue anticipation notes to four firms, which reoffered the securities to investors at 4.50% net.
Market sources said the deal saw "tremendous interest" from institutions, and sources estimated Street float at $250 million.
"It goes to show you what the institutions think about Texas," one trader said. "One firm did $350 million right away."
The notes were trading professionally late in the session at 4.54% bid, 4.50% offered.
Morgan Stanley & Co. took $500 million with a bid of 5% and net interest cost of 4.613%. PaineWebber Inc. took $100 million with a bid of 5% and NIC of 4.5999% and $60 million with a bid of 5% and NIC of 5.5799%.
J.P. Morgan Securities bought $100 million with a bid of 5% and NIC of 4.609%. Dillon, Read & Co. took $50 million with a bid of 5% and NIC of 4.6185%.
The notes are rated MIG-1 by Moody's Investors Service, SP-1-plus by Standard & Poor's Corp., and F-1-plus by Fitch Investors Service.
"By selling the notes at such a low interest rate, the state will save thousands of dollars in interest charges," said Texas Treasurer Kay Bailey Hutchison in a release. "This is the lowest interest rate any state in America has received this year for a one-year note issuance."
Texas ended the 1991 fiscal year with a cash balance of more than $1 billion, allowing the state to drop the size of the note issue from the originally planned $1.5 billion.
In competitive new-issue activity in the long-term sector, $92 million Florida Department of Natural Resources, Save Our Coast refunding revenue bonds, were won by a Merrill Lynch & Co. group with a true interest cost of 6.433%.
The offering included serial maturities priced to yield from 4.50% in 1992 to 6.60% in 2010. Merrill reported an unsold balance of $41 million late in the session.
The bonds have triple-A ratings from Moody's Investors Service and Standard & Poor's Corp.
Secondar-market trading was quiet again and mirrored the Treasury sector.
Housing starts rose a modest 0.6%, to a seasonally adjusted annual rate of 1.06 million units in August, the fifth consecutive monthly increase.
The news pushed Treasury prices down slightly, but they came back at mid-session and faded again late in the day. Municipals barely moved, and traders reported a firm tone near the end of the session.
In the debt futures market, the December municipal contract settled down 1/32, to 93.31, with the December MOB spread calculated at negative 154.
Market participants remain positive about the near-term outlook, but they say prices need another shot of good news before they can move higher.
"Everybody is bullish and has been for a while," one New York trader said. "It's going to take a serious reversal in economic news to change the market, although we're still susceptible to little blips and dips. We're looking for some real positive news to move significantly higher."
In secondary dollar bond trading, New Jersey Turnpike Authority 6.90s of 2014 were quoted near the end of trading at 99 5/8-7/8 to yield 6.90%. New York LGAC 7s of 2021 were quoted at 98 1/2-3/4 to yield 7.10%, while New York LGAC 7s of 2016 were quoted at 98 3/4-99 to yield 7.08%. Puerto Rico Electric Power Authority 7s of the 2021 were quoted at 99 7/8-100, where they returned 7.08%. And Colorado River Authority insured 6 5/8s of 2021 were quoted at 97 3/4-7/8 to yield 6.79%.
In secondary short-term note trading, yields fell five to 10 basis points on the strength of the Texas deal, traders said.
In late cash trading, Los Angeles notes were quoted at 4.60% bid, 4.55% offered, while March New York State Trans were quoted at 5.20% bid, 5.18% offered. Recently issued Pennsylvania notes were quoted late in the session at 4.69% bid, 4.66% offered.