So far, the Fed has shown no desire to tighten the federal funds rate (the interest banks charge for lending their excess reserves) in spite of the 1.2 percent increase in the consumer price index announced Friday. The average federal funds rate for the week ending Wednesday was 10.09 percent.
With out no sign of firming, the debt markets marched through a large corporate and municipal calender with relative ease. In fact, some of the corporate issues rose to a slight premium.
The blockbuster $450 million Southwestern Bell Telephone Co. issue was priced a shade richer than was anticipated. However, the 9.65 percent return stood up, and by midweek most of the issue had cleaned up. Much of the issue was acquired on swaps from older issues at attractive yield increases.
The short Ford Credit notes sold to return 9.75 percent while the longer maturity returned 9.85 percent. The double-A Cincinnati Gas and Electric Co. sold well with a 10 percent coupon priced at 101.25 to return 9.87 percent. The BAA-rated Monongahela Power issue sported a 10 1/2 percent coupon and was priced to yield 10.43 percent.
Tax-exempt new issues also sold well, as investors, led by the casualty companies, continued to purchase the housing revenue issues. Quality issues such as those from Califorina, Nevada and Shelby County, Tenn., were all priced stronger than similar loans the previous week.
In spite of the good performance, municipal dealers have begun to build large positions, as is evidenced by the increase in the Blue List (a publication that shows all the munipals that dealers have for sale) to $945 million, the high for 1979. The market became top-heavy by week's end, as some investor sold into the rising market. Consequently the upward price movement in municipals could be quite limited.
On April 24, the City of Baltimore will sell $30 million general obligation bonds. For those investors who already own Baltimore bonds, or for those considering purchasing them, Sylvan Feldstein of Smith Barney, Harris upham has just published an analytical report on Baltimore GOs.
Feldstein cites six weaknesses and 11 favorable factors to support his 5 rating, which is comparable to the A-1 by Moody's and an A-plus by Standard & Poor's.
A sound fiscal operation, a good economy, 31 percent of the city's revenues coming from supportive state monies and the retirement of 68.64 percent of the outstanding general obligations bonds within 10 years all go into the 5 rating by the Smith Barney analyst.
The Montgomery County Housing Opportunities Commission will sell a $57 million single-family mortgage revenue issue this week. A double-A rating is hoped for.
The Treasury had to postpone the sale of its 2-year note because the Senate had not increased the debt ceiling.
The Treasury will offer $3.34 billion in year bills Wednesday in minimum denominations of $10,000, and will reopen $1.5 billion of the outstanding 9 percent bonds due Feb. 15, 1994, on Thursday in minimum denominations of $1,000. These bonds should come around 9.08 to 9.15 percent. This offering is dependent upon Senate approval of the increase in the national debt ceiling.