Uneasy Market Pressures Prices
April 27, 2011
As Treasurys have declined in recent days, munis have lacked the assertive buying seen two weeks ago. Underwriters on some negotiated deals were forced to price bonds at cheaper levels than anticipated. Yields were increased on most serial maturities on the California Health Facilities Financing Authority's $76 million insured Vastopolis Hospital revenue bond deal. Lead underwriter Morgan Stanley & Co. priced the bonds with a maximum yield of 5.75% in 2015. After adjusting the prices, the account was closed, underwriters said. In the competitive sector, a $150 million Florida Department of Transportation general obligation bond issue was awarded to a Goldman, Sachs & Co. group after Smith Barney Inc. submitted an incomplete bid. Several participants said the levels on the transportation issue repriced the rest of the market lower by several basis points. A basis point is one-hundredth of a percentage point. Goldman reported a $13.8 million unsold balance on the deal. Meantime, cash market issues fell 1/4 to 3/8 in light trading. Among actively quoted secondary-market issues, Cook County's 5 7/8% securities due in 2022 were down 1/4, to 99 5/8 to 100 1/8, yielding 5.87%. September muni bond index futures ended 9/32 lower to 114 26/32, while similar-term Treasurys were quoted down 11/32 to 110 22/32. Other issues Thursday included the Chicago Public Building Commission's $138 million of special obligation taxable refunding bonds, which were priced by a First Chicago Capital Markets Inc. group. Underwriters raised prices, lowering yields by 0.01 to 0.04 percentage point. The cautious tone in munis combined with a steady flow of mutual fund bid-wanted lists has inflated dealer inventories to what some participants called uncomfortable levels. Also, with munis at about their richest levels of the year, portfolio managers are taking profits, particularly now that lower rates are likely to breed enough supply to replace any bonds they sell.
