Municipal bonds extended their gains yesterday as yields fell five basis points, whilein the new-issue market underwriters priced $1.8 billion of California revenueanticipation notes and New York City sold $500 million of general obligation bonds.
Treasuries rose for the fourth straight day, helped by a decline in stocks as corporateearnings' forecasts proved disappointing even though last quarter's results were fairlystrong.
"The earnings reports have been about on target, but the equity market has not reallyhad any momentum for the last couple of weeks," said Sadakichi Robbins, head of globalfixed-income trading at Bank Julius Baer in New York. "There is some salve in that forbond investors - they take some comfort there."
Robbins said with limited economic data so far this week, the market focus shifted awayfrom expectations of robust growth and the timing of possible monetary policy actions bythe Federal Reserve Board, which helped push yields lower.
Treasuries provided a strong lead for the municipal market, but traders also reportedconsiderable buying interest that ensured a higher bid and pushed municipal bond yieldsin general five basis point lower.
"I think people have discovered they have a little more money than they thought they hadand with the government market rallying people want to own something," a trader in NewYork said. "There were good flows both ways, both from customers and dealers."
On top of that, the municipal bond market is still benefiting from a good technicalcondition, with a lot of participants chasing a few bonds.
"There are not a lot of higher quality bonds in the Street," another trader in New Yorksaid. "You have the standard bonds that are in the Street all the time, but try to findbonds that are not associated with state government - for example, county bonds. Thereare few around."
Although new-issue volume has picked up in recent weeks, traders said not a lot of newpaper has trickled down into the secondary.
"We still had a fairly active competitive and negotiated sales week, but it seems likeeverything is getting done," a trader in Chicago said. "Maybe some of the bid-wanteds out there are people putting out bonds for the bid to pay for some of the bonds they bought."
In the new-issue market, Citigroup Global Markets Inc. priced and repriced $500 millionof New York City GOs after a two-day retail order period, during which underwritersreceived $175 million in retail orders.
At a repricing, yields were lowered selectively by five basis points in 2005, by onebasis point in 2012 and 2013 and by two basis points in 2014. The final scale comprisedserials priced to yield from 1.60% in 2005 to 4.60% in 2017. A 2004 maturity was subjectto a sealed bid.
Bonds due 2008 yielded 50 basis points more than Municipal Market Data's Tuesday triple-A yield curve scale, while a 2013 maturity yielded 57 basis points more.
The issue is rated A2 by Moody's Investors Service, A by Standard & Poor's, and A-plusby Fitch Ratings.
In the short-term sector, Lehman Brothers priced for institutions $1.835 billion ofCalifornia Rans with a 2.0% coupon yielding 1.03%. Notes mature on June 23, 2004.
The deal is part of the state's $3 billion Ran issue, which also includes a privateplacement of $1.2 billion of notes.
In the competitive sector, Citigroup won $285 million of Wisconsin GOs with a low interest cost of 4.351%, out of four bids. Lehman Brothers had the next lowest interest cost of 4.359%.
Serials were reoffered at yields ranging from 4.10% in 2015 to 4.89% in 2024. A 2026maturity was reoffered as 5s to yield 4.92%, while bonds due in 2029 were reoffered as5s to yield 4.95%. A 2034 maturity containing $19 million was reoffered as 5s to yield4.98%. Bonds due in 2005 through 2014 and in 2020 were not formally reoffered.
Bonds due in 2018 and 2023 yielded eight basis points more than MMD's Tuesday triple-Ayield curve scale.
The issue is rated Aa3 by Moody's, AA-minus by Standard & Poor's, and AA by Fitch.
Finally, Lehman postponed pricing of $400 million of Illinois GOs until today.
