Municipal bond prices fell 1/2 to 3/4 point yesterday after stronger-than-expected economic data and a weak dollar lopped 1 1/8 points off the 30-year Treasury bond.
"I would say we are outperforming governments," one municipal trader said. "There are guys willing to buy bonds -- there is some activity -- it's not one of tnese free falls where everyone has their helmets on and no one wants to buy," he added.
In what he judged as a hght to moderately active session yesterday, a municipal analyst pegged dollar bonds down by 5/8 overall and by as much as 3/4 points in spots. Yields on high-grade issues rose five basis points overall and somewhat more in spots, he said.
One reason why municipal bonds did not get hurt as badly as Treasuries, the analyst said, is the lack of municipal supply.
In debt futures yesterday, the December municipal contract closed down nearly a point to 85 21/32s. Yesterday's December MOB spread was negative 383, compared with negative 385 on Wednesday.
In the Treasury market, the 30-year bond's yield finished just under the 8% mark at 7.99%.
The government market fell on stronger-than-expected news from both the Federal Reserve Bank of Philadelphia, which released its business outlook survey for October, and the Commerce Department, which reported September housing starts, according to Kathleen Camilli, chief economist at MFR Inc.
The Philadelphia Fed survey's general activity diffusion index increased sharply this month to 33.2 from 14.8 in September. Housing starts, meanwhile, climbed 4.4% in September to a seasonally adjusted annual rate of 1.525 million units.
Adding to market woes were Treasury Secretary Lloyd Bentsen's comments that he didn't expect to see any intervention to support the dollar, Camilli said. The dollar began to fall after those comments, hitting a low of 96.95 yen at about 1 p.m., she noted.
In negotiated action yesterday, Morgan Stanley & Co. priced and repriced $162.5 million of special obligation revenue bonds for the Maryland Transportation Authority with a TIC of 6.43%.
Proceeds from the issue, which was insured by Financial Guaranty Insurance Co., will fund an expansion of the Baltimore/Washington International Airport, including a new international terminal.
The deal involved some unique twists on the use of passenger facility charges, including a double-barreled pledge of those revenues and revenues from the authority's toll facilities that are unrelated to the airport. Because the issue is not backed by any general airport revenues and some of the projects to be funded are considered public purposes, a portion of the issue was not subject to the alternative minimum tax.
About $112 million of the bonds were subject to the alternative minimum tax.
About $54 million of the bonds were sold as special sinking fund bonds due in 2019 that the authority hopes to redeem early, using excess revenues from the $3 passenger facility charge the airport collects per enplaned passenger.
Stephen L. Reich, the authority's executive secretary, said the deal went well even though the market was "a little tough."
"For a new kind of credit and with an unique kind of deal and the way the market was, we're very satisfied," he said.
At repricing, yields on some of the bonds were raised by up to 10 basis points, according to a source familiar with the deal. The $112 million of AMT bonds featured a top yield of 6.40% in 2019, while the $49.9 million of non-AMT bonds featured a top yield of 6.10% in 2007.
Yields were raised at the repricing "just because of the market conditions," the source said. Asked about a balance, he replied, "It's going to be closed completely."
Topping next weeks's negotiated calendar are $290 million City of Chicago, Chicago O'Hare General Airport second lien revenue refunding bonds through senior manager Merrill Lynch & Co. Also next week, BA Secuffties is expected to bring $280 million of California State Public Works Board lease revenue bonds to market, while the Missouri Health and Education Facilities Authority has slated a $179 million of health facilities revenue bond offering through Merrill Lynch. The West Virginia School Building Authority is also expected to bring $138 million of MBIA-insured bonds to market through senior manager Donaldson, Lufkin & Jenrette.
In competitive action next week, the New Jersey Housing and Mortgage Finance Agency is scheduled to sell $86 million of revenue bonds subject to the alternative minimum tax, and $64 million of non-AMT revenue bonds.
The 30-day visible supply of municipal bonds yesterday totaled $3.165 billion, down $100,000 from Wednesday. That comprises $1.465 billion of competitive bonds, up $66.7 million from Wednesday, and $1.7 billion of negotiated bonds, down $66.8 million.
Standard & Poor's Corp.'s Blue List of municipal bonds was up $12.9 million yesterday to $2.02 billion.