Trading in a $355 million Maryland Department of Transportation bond issue began at noon yesterday, and by 5 p.m. some traders had made profits of as much as 1 1/2 percent.
The quick profit was possible because unusually strong demand for the bonds pushed their price above the par or list price even before trading began.
The 100 par bonds traded from 101 1/8 to 101 1/2 during the afternoon, said Edward Kresge, a first vice president of Wertheim & Co., the managing underwriter.
Bond traders disagreed over whether that was good news or bad news for the State of Maryland.
Some local investment specialists suggesged the premium meant the 5 3/8 percent interest rate on the bonds was too high, since the premium lowered the effective rate for bond buyers.
If the interest rate had been 1/8 percent lower, the state would have saved $6 million interest over the 15-year life of the bonds.
But the Wetheim spokesman said, "we felt the financing was highly successful in that a wider national market was created for the Maryland Department of Transportation that will help in future sales."
The Maryland DOT has other bond issues coming up in the next several months. The state has never had any trouble finding a ready market for its securities. The DOT bonds were rated AA, and the state's general obligation bonds are rated AAA plus, the highest possible ranking.
Because the $355 million bond issue was several times larger than any previous DOT offeringa, and involved an unusual refinancing of other debts, it was not sold by the competitive bidding usually used for such issues.
Instead interest rates were negotiated between DOT and the underwriting group, lead by Wertheim and two Baltimore firms, Alex Brown & Sons and Baker, Watts & Co. They lined up 330 banks and investment firms to buy the bonds.
Originally the bonds were to be sold below par, at a price of $99.50 per $100, but the price was raised to 100 the day before the bond sale.
The price was increased, other bond dealers reported and Wertheim confirmed, because of a "black market" for the bonds formed in which would be buyers were offering to pay premium prices for the bonds even before thye legally went on sale.
Raising the price of the bonds from 99.5 to 100, netted the state an additional $1.8 million. But the premium paid for the bonds in open market trading yesterday benefited only the syndicate members who resold their bonds.
"In a transaction like this there are always some people who could make some quick profits," Kresge said. he said Werthieim did not know who had made the 1 1/2 per cent per afternoon profit and could not estimate how many of the bonds changed hands yesterday.
Unlike stocks which trade on formal markets where all transactions are recorded, government bonds are traded informally, over the telephone.
Kresge said Werthieim "had told the department we thought there would be a slight premium" and described the amount as "not an unusually high premium in our judgment."
Other bond industry sources reported that because of the high interest rates, some $400 million in orders were placed for $355 million worth of bonds. Kresge refused to explain how Wertheim decided which of the orders to fill, saying only, "There are several yardsticks."
The bond issue had several other unusual features. Unlike most municipal offerings, which mature serially, all the Maryland bonds mature in 15 years, assuring investors of a long-term interest rate.
In addition the bond prospectus called for $50 million of the $355 million to be placed in a special fund to be invested in federal government securities.