Upcoming supply held municipal prices at bay yesterday with the tone heaviest in the New York sector, which faces almost $1 billion in new issuance this week beginning with today's $295 million New York Power Authority offering.
Treasury prices made 3/8 point gains by session's end, but municipals closed unchanged to down 1/8 point in spots in sluggish trading, thanks to $6 billion in new deals that are slated to be priced this month. High-grade bond yields were up about two basis points on the day.
Futures prices also sold off in the face of the supply. The March contract settled down 1/32 to 93.28 and the December contract closed down 4/32 to 94.16. The March MOB spread widened to negative 169.
About $4.6 billion in new securities are slated to be priced this week. New York issuers account for the largest deals and traders reported more pressure on the New York sector as a result, with bids down about 1/4 point on average.
"New York's under a lot of pressure, not only technically, but also credit-wise." one trader said.
But other market participants said it is difficulty to discern the outcome of a deal's performance before it is priced.
"You can't really draw a conclusion on Monday," said the head of one trading desk. "The market will have to back off because of supply and the New York sector will have to move more, but you have to wait to see who's going to show up at the party to really know the downside potential."
Both the state and New York City are also suffering budget woes and -- reflecting the downside potential -- several traders reported New York bids down as much as one point yesterday, depending on the name.
In addition, the troubled Metropolitan Transit Authority deal continues to cause some trepidation in the secondary.
"In light of the MTA problem, the New York deals this week will test what people think about that state's appropriation bonds," one trader explained. "MTAs are still giving people problems and it places uncertainty on New York names in general."
The New York State Power Authority will be the first to test the market with its $295 million offering of general purpose bonds, to be priced by First Boston Corp.
Traders said they expected the deal to come with a maximum yield ranging from 6.80% to 6.85%. Preliminary price talk among managers, sources said, was for bonds in 2018 to be priced to yield 6.80%. In late secondary trading, the outstanding New York State Power 6 3/4s were quoted at 99 3/8 bid to yield 6.80%.
In other action, the New York State Medical Care Facilities Finance Agency will tap the competitive sector with an $86 million offering of revenue bonds, which should also help define a price range for the state's bonds.
New-issue activity was light yesterday, but in the negotiated sector Atlanta-based Trust Company Bank tentatively priced $134 million of Fulton County School District, Ga., general obligation refunding bonds.
The offering included serial bonds tentatively priced to yield from 4.20% in 1992 to 6.40% in 2006.
Term bonds in 2011 were tentatively priced as 6 3/8s to yield 6.55% and a 2017 term was tentatively priced as 6 3/8s to yield 6.60%.
The bonds are rated double-A by both Moody's Investors Service and Standard & Poor's Corp.
In the secondary market, supply has increased in concert with the primary sector. Standard & Poor's The Blue List of dealer inventory rose $13 million yesterday to $1.7 billion.
The National Associationi of Purchasing Managers index for November declined to 50.1% from 53.5% in October, the second decline in a row, but pending supply rendered the news meaningless.
Traders instead focused on three sizable customer lists, much of which traded, they said. The lists were made up mostly of longer maturities with some blocks totaling as much as $15 million.
In secondary dollar bond trading, prices were narrowly mixed. Florida Board of Education 6 3/4 of 2021 were quoted at 99-3/4 to yield 6.77% and New Jersey Turnpike Authority 6 1/2s of 2016 were quoted at 97 3/8-5/8 to yield 6.69%. Pennsylvania Turnpike Authority 6 1/2s of 2013 were quoted at 96 5/8-7/8 to yield 6.77% and North Carolina Eastern Power 6 1/2 of 2017 were quoted at 96 1/4-3/4 to yield 6.76%.
Short-term note prices outperformed the rest of the market yesterday as yields sank as much as 15 basis points thanks to coupon reinvestment by funds at the turn of the month.
In late secondary trading, Los Angeles Trans were quoted at 3.84% bid, 3.80% offered. March New York State Trans were quoted at 5.18% bid, 5.15% offered. Texas notes were quoted at 3.83% bid, 3.80% offered in late cash trading.
Trading has been light in the short-term sector due to a dearth of new issues, but this year has been the second heaviest year for note issuance. Issuers tapped the market for a total of $39.54 billion, exceeded only by 1982's $43.39 billion tally.
In the prerefunded sector, bonds with national names, callable in 1995, were quoted at 5.14% bid, 5.10% offered, while bonds callable in 1996 were quoted at 5.19% bid, 5.15% offered in late cash trading.
Merrill Lynch & Co. as senior manager tentatively priced $76 million of Kissimee, Fla., Utility Authority electric system improvement and refunding revenue bonds.
The offering included serial bonds tentatively priced to yield from 4.40% in 1992 to 6.65% in 2008, while a 2011 term was tentatively priced to yield 6.70% and a 2017 term was tentatively priced to yield 6.75%.
The bonds are insured by FGIC and triple-A rated by Moody's, Standard & Poor's, and Fitch Investors Service.