Municipals continued to plunge yesterday, adding one- to two-point losses to Friday's 1/2- to one-point drop, creating enough market instability for some scheduled deals to be delayed.
Another sudden slide in the value of the dollar sent the credit markets lower on Friday and the dollar was weaker again yesterday.
The Treasury market dove more than one point on the news and municipals suffered even more because of supply pressure and the fact that many buy-side players have taken vacations, market players said.
Traders reported bonds out for the bid during the morning session, but activity was minimal thanks to an especially weak bid. Prices were down 1/2 point on average soon after the open and continued to drop throughout the day, with some market players suffering serious losses.
"The bears are certainly in control," said one trader. "There are people who are suffering big losses in this market. It seems like we've borne the brunt of the damage and the dollar should stabilize, but that remains to be seen.'
By the close of trading, cash prices were quoted down one point on average, but some bonds suffered losses of as much as two points.
For example, in secondary dollar bond trading, Florida State Board of Education 6s of 2022 were quoted at 95-96 to yield 6.37% on the bid-side down from 96 1/2-97 to yield 6.26% quoted late Friday. Other bonds lost more ground, including Chicago GO insured 5 7/8s of 2022, which were quoted at 92 1/2-93 1/8 to yield 6.44% late yesterday, compared to 94 1/2-bid to yield 6.28% Friday.
Traders said high-grade bond yields rose 10 to 15 basis points by session's end.
In the debt futures market, the September municipal contract settled down 22/32 to 96.03. The MOB spread was calculated at negative 276 compared to negative 285 Friday.
Supply pressure also continued to dog the tax-free market as underwriters were hard put to sell bonds from new issues in the current market environment.
The market was shaky enough for three underwriters to delay major deals until the market stabilizes.
The Bond Buyer calculated 30-day visible supply at $5.98 billion yesterday, while The Blue List declined $102.5 million to $1.75 billion.
In light new-issue activity in the negotiated sector, PaineWebber Inc. priced $96 million of noncallable Kenton County, Ky., revenue bonds for the Cincinnati/Northern Kentucky International Airport.
The offering included $94 million of Series A bonds, subject to the federal alternative minimum tax, priced to yield from 6% in 2003 to 6.20% in 2005. A 2011 term, containing $41 of the loan, was priced as 6 1/8s to yield 6.50% and a 2015 term was priced as 6 1/8s to yield 6.55%. There also was $2 million of Series B bonds priced at par to yield from 3% in 1993 to 5.70% in 2002.
The issue is insured by Financial Security Assurance and triple-A rated by Moody's and Standard & Poor's
A.G. Edwards & Sons priced and repriced $81 million of GO school building bonds for the St. Louis, Mo., Board of Education.
Yields were raised by three to as much as 20 basis points throughout the loan.
The final offering included serial bonds priced to yield from 2.90% in 1993 to 6.078% in 2007. A 2012 term, containing $32 million of the loan, was priced as 5 3/4s to yield 6.25%.
The bonds are insured by the Financial Guaranty Insurance Co. and are triple-A rated by Moody's, Standard & Poor's, and Fitch Investors Service.
In follow-through business, Smith Barney, Harris Upham & Co. freed $296 million of Clark County, Nev., McCarran International Airport passenger facility charge revenue bonds from syndicate restrictions.
In the secondary action, the AM-BAC-insured 6s of 2022 were quoted at 94-3/8 to yield 6.45%.
Activity was minimal as the bid side weakened, traders said.
In late secondary dollar bond trading, Puerto Rico 6s of 2014 were quoted at 94-1/4 to yield 6.51%; Florida Municipal Power FGIC 5.70s of 2016 were quoted at 93-1/2 to yield 6.26%; Los Angeles Department of Water and Power 6s of 2032 were quoted at 94 1/4-5/8 to yield 6.40%; and New York City Water Authority 6s of 2017 were quoted at 92 1/2-7/8 to yield 6.61%.
In the short-term note sector, yields were mixed on the day, traders said.
Iowa Trans were quoted at 3.05% bid, 3% offered; Los Angeles Trans were quoted at 3.03% bid, 2.98% offered; and Wisconsin notes were quoted at 3.05% bid, 3% offered. New York City Tans were quoted at 2.95% bid, 2.85% offered and New York State Trans were quoted at 3.16% bid, 3.13% offered. Texas notes were quoted at 3.05% bid, 3% offered.
Dillon, Read & Co., senior manager for $66 million of Metropolitan Transportation Authority revenue bonds, said yesterday the sale was postponed due to unstable market conditions.
Citing "instability in the current market," the firm said the deal will be placed on a "day-to-day" basis and will be rescheduled when market condition are more favorable.
Merrill Lynch & Co., senior manager for $147 million of Chicago Board of Education, Ill., general obligation lease certificates, tentatively priced the deal and then pulled it from the market.
The offering had been tentatively priced to yield from 2.75% in 1992 to 6.15% in 2005 with coupons ranging from 7.30% in 1992 to 7.75% in 2005.
The bonds were insured by the Municipal Bond Investors Assurance Corp. and triple-A rated by both Moody's and Standard & Poor's.
George K. Baum, senior manager for $125 million of Community College District No. 508, Cook County, Ill., general obligation lease certificates, also said the issue was delayed due to market conditions.
Before the deal was pulled from the market, the firm had tentatively priced the issue.
Noncallable serial bonds were priced to yield from 2.75% in 1992 to 6.35% in 2007. Coupons ranged from 6.60% in 1992 to 7.70% in 2007.
The issue is MBIA-insured and triple-A rated by Moody's and Standard & Poor's.