It was another negative week in the bond markets as interest rates continued to rise even though there was no adverse economic news. The markets had sagged through the first part of the week, especially after the widely respected bond house of Salomon Bros. issued a gloomy economic scenario for bonds in 1979.
This seemed to confirm what other market participants had felt, and several corporate lists came into the marketplace looking for bids. The added supply helped push prices lower. Later, The Treasury announced that the funds raised overseas through its sales of foreign-denominated bonds would reduce the governments needs here at home by an "equivalent amount." This bit of news lifted the corporate and Treasury markets, although much of the activity by traders.
The money market analysts proved right for the first time in four weeks as the monetary aggregates rebounded by unexpected down numbers as had happened in the past three weeks.
More and more, the Federal Reserve is being critized for not attacking what many professionals feel is the heart of the credit growth problem, namely on continued growth in the "monetary base." In our banking system, the "monetary base" consists mainly of members bank reserves and currency in circulation.
The municipal market was overwhelmed by supply and a lack of buyers. As Bud Canaday of John Nuveen & Co. said, "There was so much competing merchandise that the only way to get the investors' attention was with cheaper prices." The Bond Buyers Index rose 16 one-hundredths to 6.45 percent, the highest level since October 1976.
Several state general obligations came at attractive yields, the highest levels since July. The manmouth New Jersey Sports Complex revenue issues were re-priced twice before they could be sold. A return of 6.25 percent was available on ther term issue of the state-guaranteed loan, while 6.70 percent was returned on the smaller loan. Several A-rated revenues returned from 7 to 7.50 percent on their terms bonds. Clearly the levels on both the general obligations and revenue issues are attractive, being at or near their highs for 1978. However, the housing finance agencies being readied for January are sizable, so no immediate downturn in rates seems likely. Buyers should be selective at this point and commit only a small amount of funds.
The corporates performed poorly last week as the $150 million triple-A Mt. States Telephone issue remained two-thirds unsold at 9.27 percent return. When freed for trading the next day, the issue quickly fell to a 9.38 percent level. The good double-A Houston Lighting and Power Co. issue, which came two weeks ago at 9.30 percent, old last week at a 9.45 yield.
The Treasury will offer two issues this week. A $2.5 billion two-year issue will be sold in minimums of $5,000 on Tuesday, and $2.5 billion of four-year notes in $1,000 minimums will be offered to investors on Wednesday.These notes may be purchased at the Treasury in Washington, D.C., or at any of the Federal Reserve banks or their branche throughout the rest of the country. Guesstimates as to the returns would be 9.60-9.70 percent of the two-year and 9.05-9.15 percent on the four-year.