A late Treasury rally gave municipals a shot of confidence yesterday and priced jumped, erasing much of the uncertainty that has recently dogged the market.
Tax-exempts opened unchanged to 1/8 point higher in sympathy with higher Treasury bond prices.
Governments improved early on after new orders for durable goods were reported unchanged in April, following a revised 3.7% decline in March. Market players had expected a 1.6% increase.
But a decisive move higher was initially subdued by the pending $11 billion five-year Treasury note auction.
As the session wore on, government securities pries inched higher as market players anticipated good auction results.
True to expectations, the auction went well and prices made more gains.
But the Treasury market suddenly nearly one point higher near the close of futures trading.
Traders said governments popped when the better-than-expected auction caught some dealers without bonds and they had to buy in the secondary. There was enough demand to push the bond contract above a key resistancee level, which then set off stops and triggered other buying as well. Traders also cited short-covering as an additional price booster.
Municipals continued to improve in sympathy, and prices that had been cheap compared to Treasuries began to catch up. But the gains typically lagged the government market.
By session's end, prices were quoted 3/8 point higher on average, although other bonds spiked 5/8 to 3/4 point, depending upon the name.
In the debt futures market, the June municipal contract turned in a strong performance, settling up 17/32 to 100.21.
But the June MOB spread yesterday widened to negative 333 from negative 321 on Tuesday, as governments out paced municipals.
Looking long-term, there is still uncertainty over the fate of the nation's budget, a potential time bomd for bonds.
Market players will keep one eye on Washington as the President's budget package makes its way through Capital Hill. The first stop is a vote today by the House.
As stalemate on the budget, or a compromise that fails to cut the federal deficit enough would likely hurt long bond prices, traders said.
But in the near-term, the jump in prices injected new energy into the market, allowing dealers to clean up positions that had languished from a lack of liquidity in the volative market. The firmer market also made for smoother sailing for new issues.
In addition, many of the week's biggest deals were delayed, easing supply pressure and brightening market tone further.
Yesterday, both $253 million Seattle. Washington refunding revenue bonds and $150 million Kissimme Utility Authority, Fla., refunding revenue bonds were postponed.
Looking ahead to supply, The Bond Buyer calculated 30-day visible supply at $7.05 billion.
Secondary supply continued to increase, although yesterday's rally should eliminate some of the overhanging bonds, traders said.
The Blue List of dealer inventory rose yesterday for the third day in a row, climbing $21.3 million, to $1.74 billion, 11% higher than last Friday's $1.57 billion total.
Yesterday's total is the highest for the Blue List since April 5, when it totaled $1.78 billion.
Goldman, Sachs & Co. priced and repriced $244 million California Statewide Communities Development Authority insured health facilities revenue certificates of participation for Unihealth America.
At the repricing, yields in 2006 were raised by five basis points, whilew yields in 2014 were lowered by two basis points.
The final offering included $189 million serial and term bonds, priced to yield from 2.50% in 1993 to 5.65% in 2007 and 5.80% in 2014 and 5.85% in 2025.
Non-callable capital appreciation bonds were priced to yield 5.60% in 2004 and 5.70% in 2005.
The issue included $27.5 million periodic reset securities and $27.5 million corresponding inverse floating securities.
The offering is insured by the AMBAC Indemnty Corp. and rated triple-A by Moody's Investors Service and Standard & Poor's Corp.
Alex. Brown & Sons Inc. priced $82 million Maryland Health and Higher Education Facilities Authority refunding revenue bonds for the Johns Hopkins Hospital.
The firm said it received the verbal award at the original price levels.
The offering included serial bonds priced at original issue discounts to yield from 4.90% in 2000 to 5.70% in 2009. A 2023 term, containing $47 million of the loan, was also priced at an original issue discount as 5s to yield 5.80%.
The bonds are rated Aa by Moody's and AA-minus by Standard & Poor's.
Lehman Brothers as sole manager tentatively priced $73 million revenue certificates of participation for the Redding, Calif., Electric System.
The tentative offering included $35 million serial current interest certificates, priced to yield from 4.70% in 1999 to 5.65% in 2008. A 2013 term was priced as 5 5/8s to yield 5.75%.
The issue included $6 million serial capital appreciation certificates priced to yield from 5.70% in 2005 to 5.90% in 2008.
Also in the offering were $15 million of select auction variable rate securities and $15 million of corresponding residual interest certificates.
The issue is insured by the Financial Guaranty Insurance Co. and rated triple-A by Moody', Standard & Poor's, and Fitch.
In light competitive action, a Merrill Lynch & Co. group won $103 million Fairfax County, Va., unlimited tax public improvement bonds, bidding a true interest cost of 5.2307%.
Despite a recent influx of Virginia paper, David J. Andersen, director of national underwriting at Merrill Lynch, said 60% to 70% of the deal was done presale, with strong institutional demand. The firm reported an unsold balance of about $6 million near session's end.
Serial bonds were reoffered to investors at yields ranging from 4% in 1997 to 5.35% in 2006. Bonds from 1994 through 1996, 1999, 2000, and from 2007 through 2013 were not formally reoffered to investors.
The issue is rated tripe-A by Moody's and Standard & Poor's.
Traders reported a dull session until the late afternoon price jump.
After prices improved, traders said a flurry of bonds changed hands as market players were willing to take more chances.
One large firm said it traded a sizable block of Connecticut non-callable 5 1/2s of 2011 at 99% to yield approximately 5.51%.
In secondary dollar bond trading, prices were quoted up 1/8 to 1/4 point on average, but some bonds were up as much as 3/4, depending upon the name.
In late action, California Water 5 1/2s of 2023 were quoted up 1/4 at 5.85% bid, 5.80% offered; Texas Municipal Power MBIA 5 1/4s of 2012 were quoted up 1/4 at 5.82%-bid-none; and New York City 6s of 2021 were quoted up 1/8 to 6.24% bid, 6.23% offered.
Washington Public Power Supply System MBIA 5.70s of 2017 were quoted up 1/8 at 96 5/8-7/8 to yield 5.96%; Los Angeles DEWAP 5 7/8s of 2030 were quoted up 1/8 at 99 5/8-7/8 to yield 5.90%; and Chicago GO FGIC 5 5/8s of 2023 were quoted up 1/4 at 95 1/8-1/4 to yield 5.97%.
In the short-term notes sector, yields were mixed for the third session in a row.
In late trading, California notes were quoted at 2.90% bid, 2.85% offered; New York State notes were quoted at 2.45% bid, 2.40% offered; and Texas notes were quoted at 2.40% bid, 2.35% offered.