Yields resumed their recent upward trend yesterday after seemingly minor economic data had a major negative impact, eradicating gains posted Monday.
Bonds opened lower after rising 1/4 to 3/8 point Monday on sharply lower prices for oil and other commodities. Just after the New York opening, the 30-year Treasury bond was quoted down 16/32 to yield 6.265%, while the December municipal contract fell 9/32 to 101.30, even though oil prices remained weak. Soon afterward, the government market dove after bigger than expected jumps in consumer confidence and the Chicago National Association of Purchasing Managers report.
The "minor economic numbers" released yesterday "completely reversed our attempt at a comeback on Monday," a trader said. "They saw those numbers and just walked away from the market. Few people have the stomach for any more big losses."
The Conference Board said its consumer confidence index surged 10.7 points in November to 71.2. The Chicago National Association of Purchasing Managers index, meanwhile, increased to 65.3% in November on a seasonally adjusted basis from 57.0% in October, the Purchasing Management Association of Chicago said.
The 30-year bond fell 17/32 to yield 6.315% in sympathy with the sips of a stronger economy, while the December contract fell 2'/32 to 101.18.
Tax-exempt traders reported light action with only a few bid lists circulating in the secondary. Some sizable blocks of bonds were said to change hands in the secondary, including $19 million New York Local Government Assistance Corp. bonds. Bonds continued lower throughout the session until a coupon pass by the Federal Reserve took the Treasury market off its lows. By session's end, tax-exempts were quoted down a solid 1/2 point on average, traders said, but some bonds lost as much as 3/4 to one point. High-grade bond prices fell 3/8 point on average, traders said.
In late secondary dollar bond trading, Los Angeles Wastewater FGIC 5.20s of 2021 were quoted down 1/8 at 5.63% bid, 5.58% offered; Chicago GO FGIC 51/2s of 2024 were down 1/2 at 5.72% bid, 5.69% offered; and New York City 53/4s of 2014 were one point lower at 6.05% bid, 6.01% offered.
In the debt futures market, the December municipal contract settled down 15/32 at 101.24. The contract posted a high of 102.04 and a low of 101.13. The MOB spread narrowed to negative 440 from negative 447 on Monday. The MOB has been on the decline recently as municipals lost less than Treasuries.
Reflecting some better business flow on Monday, The Blue List fell to $1.54 billion yesterday from $1.66 billion.
The measure of dealer inventory has not been that low since Oct. 19 when it was $1.42 billion -- the only day The Blue List has been under $1.5 billion since Sept. 20. The list averaged $1.78 billion in November and $1.58 billion so far this year.
The 30-day visible supply, meanwhile, jumped $950 million to $6.91 billion, the highest level since Nov. 16 when it was $7.38 billion.
Looking ahead, traders decried the lack of liquidity in the secondary and said today's new issue results would likely hold the next clue for prices. The week's busy economic calendar, they said, would continue to hold the market's attention, culminating with Friday's employment report.
Speculation that the market had begun a major trend reversal began more than a month ago and prices have steadily declined since. Many players say buyers will show up with turn-of-the year cash from redemptions, coupon payments and maturing bonds to save the market from even more losses.
Contrarians quickly note that the "January Effect", as the influx of investor cash is often called, is nothing more than a red herring. Many traders said yesterday that if the government long bond is unable to hold at the current levels, 6.50% could be the next stop. More bearish players at some big firms painted a darker picture.
"I'll put the gloves on," said the head of a trading desk. "We're in a bear market, long bond 7% next year."
Topping the competitive slate, Donaldson, Lufkin & Jenrette Securities Corp. and Kidder, Peabody & Co. as co-managers won $120 million Ohio Public Facilities Commission higher education capital facilities revenue bonds, bidding a net interest cost of 4.8544%.
Lehman Brothers had the cover with an NIC of 4.8635%.
Donaldson Lufkin reported an unsold balance of about $23 million late in the day.
The Ohio serial bonds were reoffered to investors at yields ranging from 3.40% in 1995 to 5.30% in 2008. The bonds are rated Al by Moody's Investors Service and A-plus by Standard & Poor's Corp.
In the negotiated arena, Paine-Webber Inc. priced and repriced $173 million Connecticut Housing Finance Authority housing mortgage finance program bonds.
At the repricing, serial bond yields were raised by about three basis points on bonds in Subseries F-1 maturing in 2000 and 2001 and on Subseries F-2 bonds maturing in 2000. Yields were lowered by about five basis points on 1996 Subseries F-2 bonds.
The final offering included $141 million Subseries F-1 bonds priced to yield from 4.63% in 2000 to 5.60% in 2011. Bonds from 2008 through 2010 are not reoffered. A 2014 term was priced as 5.60s to yield 5.65% and a 2019 term was priced as 5.60s to yield 5.70%. There also was $32 million Subseries F-2 bonds priced to yield from 3.80% in 1996 to 4.60% in 2000.
The managers said they expected the issue to be rated double-A by Moody's and Standard & Poor's.
CS First Boston priced and repriced $100 million collateralized revenue refunding bonds for the Houston, Tex., Lighting & Power Co. project.
Yields were raised by about three basis points on bonds due 2017, at the repricing.
The final offering included $84 million bonds for the Brazos River Authority priced as 5.60s to yield 5.70%. The remaining $17 million of bonds were priced for the Gulf Coast Waste Disposal Authority but not formally reoffered to investors.
The issue is insured by the Municipal Bond Investors Assurance Corp. and rated triple-A by Moody's and Standard & Poor's.
Smith Barney Shearson priced and repriced $95 million Snohomish County, Wash., Public Utility District No. 1 generation system revenue bonds.
At the repricing, serial bond yields were raised by five basis points while term bond yields were raise basis points.
The final Snohomish offering, subject to the federal alternative minimum tax, included serial bonds priced to yield from 4.55% in 1999 to 5.75% in 2009. A 2014 term was priced as 5.70s to yield 5.833% and a 2024 term, containing $53 million, was priced as 5.80s to yield 5.925%.
The bonds are rated A1 by Moody's and A-plus by Standard & Poor's and Fitch.