Treasury to recall 25-year bond to ease public debt refinancing costs.

The Treasury Department announced yesterday plans to recall a 25-year bond to reduce the cost of financing the public debt.

The bonds are being called because the 81/2 coupon on the issues is significantly more than the current cost of securing financing for the five years remaining to their final maturity.

In current market conditions, the Treasury estimates that the budget outlay savings from the call and refinancing will be between $150 million and $160 million.

There are about $2.4 billion of the bonds currently outstanding, of which $961 million are held by private investors, the Treasury said.

The Treasury plans to refinance the call of the $961 million that is held by private investors by issuing an additional amount of five-year notes to be announced Jan. 19 for settlement at the end of the month. The redemption will be at par on May 15, 1994.

The 8 1/2 25-year bond -- issued in 1974 -- was priced before the Treasury began selling noncallable debt in 1984, the form in which most U.S. governments are now sold. Securities not redeemed on May 15, 1994, will cease to earn interest.

In secondary trading, Treasury securities ended with a firm bid yesterday as buyers took advantage of attractive yield levels.

The 30-year bond ended up 2/32 to yield 6.23%.

Activity was generally light as many accounts remained at bay ahead of the December inflation reports, due out today and tomorrow. Though most observers expect good inflation news, many accounts are not willing to bet on the market until they see further evidence that prices are not trending higher.

Still, many players were encouraged by the market's ability to withstand strong corrective pressures and purchased government-backed paper.

Renewed confidence about owning Treasuries reflects the belief that inflation and interest rates will remain low. Moderate gains made by the labor market in December will probably contain upward price pressures and give the Federal Reserve some breathing room on interest rates, observers said.

"Now that the market thinks the Fed isn't going to tighten, things are stabilizing," said Donald Fine, chief market analyst at Chase Securities Inc.

State and local governments were reported to be decent buyers of Treasuries yesterday as part of ongoing defeasance programs. Somewhere in the neighborhood of $2 billion of municipals were priced yesterday.

Fueling inflation talk yesterday was a New York Times report saying that the consumer price index last year overstated true inflation by 0.6 of a percentage point. Participants said many of the observations in the article are not new but that it had a significant effect on price action.

The report was thoroughly denied by a senior Bureau of Labor Statistics official, who labeled as inaccurate published reports that government officials now believe the consumer price index overstates inflation by a large amount.

Economists polled by The Bond Buyer generally expect a 0.1 % decline in the December producer price index. Such a reading, they said, will probably calm fears that stronger growth in the economy will lead to inflation.

In futures, the March bond contract ended Up 2/32 to 116.13.

In the cash markets, the 4 1/4% two-year note was quoted late yesterday Up 2/32 at 100.12-100.13 to yield 4.03%. The 5 1/8% five-year note ended Up 5/32 at 100. 19-100.21 to yield 4.97%. The 53/4% 10-year note was up 4/32 at 100.27-100.31 to yield 5.61%, and the 6 1/4% 30-year bond was up 2/32 at 100.02-100.06 to yield 6.23%.

The three-month Treasury bill was down four basis points at 3.02%. The six-month bill was down three basis points at 3.22%, and the year bill was down two basis points at 3.48%.

Corporate Securities

Investor appetite for commercial paper was satisfied yesterday as more than $3.6 billion of corporate and agency bonds were priced.

The positive interest rate outlook prompted issuers to bring their offerings to market ahead of potentially higher inflation data this week. Meanwhile, brisk customer interest in the market caused spreads to tighten further yesterday.

System Energy Resources Inc., a unit of Entergy Corp., issued $435 million of secure-backed obligation bonds in a two-tranche deal, according to lead manager Morgan Stanley & Co.

The first tranche consisted of $365 million in 7.43% bonds with an 11-year average life and 17-year final maturity. The bonds were priced at par, or 180 basis points more than comparable Treasuries. The second tranche includes $70 million of 8.20% bonds with a 19.7 year average life and 21-year final maturity.

The bonds were priced at par, or 183 basis points more than comparable Treasuries. Both are noncallable for 10 years and are expected to receive Baa3 ratings from Moody's Investors Service.

First USA Bank, a unit of First USA Inc., is issuing $350 million of bank notes due Jan. 15, 1999, yielding 5.85%, said lead manager Merrill Lynch Capital Markets.

The notes were given a 5 3/4% coupon and were priced at 99.574 to yield 85 basis points more than comparable Treasuries.

Noncallable for life, the issue is rated Baa3 by Moody's and BBB-minus by Standard and Poor's Corp.

A $350 million issue of Province of Manitoba notes, due Jan. 19, 2004, was priced as 6 1/8 at 99.903 to yield 6.138%, according to lead manager Merrill Lynch Capital Markets.

The noncallable notes were priced 50 basis points more than comparable Treasuries. Gross spread is $6.50; selling concession is $4; and reallowance is $2.50. Delivery is scheduled for Jan. 19.

Rated Al by Moody's and A-plus by Standard & Poor's, the issue will be sold through underwriters led by Merrill Lynch & Co.

Sears, Roebuck and Co. issued $300 million of notes due Jan. 15, 2004, according to lead manager Morgan Stanley & Co.

The notes were given a coupon of 6 1/4% and were priced at 99.573 to yield 6.308%, or 67 basis points more than comparable Treasuries.

Noncallable for life, the issue is expected to be rated Baa1 by Moody's and BBB-plus by Standard & Poor's.

Wachovia Corp. issued $250 million of subordinated notes due Feb. 1, 2009, said lead manager Merrill Lynch Capital Markets.

The notes were given a coupon of 6 3/8% and were priced at 99.87 to yield 6.388%, or 75 basis points more than comparable Treasuries.

Noncallable for life, the issue is expected to be rated A1 by Moody's and AA-minus by Standard & Poor's.

Tennessee Valley Authority issued $250 million in first installment series bonds due March 15, 1997, according to sole manager CS First Boston. The issues were priced at par, or 18 basis points more than comparable Treasuries.

International Lease Finance Corp. issued $ 100 million of notes due Jan. 15, 1997, according to lead manager Lehman Government Securities.

The notes were given a coupon of 4 1/4% and were priced at 99.861 to yield 4.80&, or 45 basis points more than comparable Treasuries.

Noncallable for life, the issue is expected to be rated A2 by Standard & Poor's.

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