Last week was definitely an "unholy" week for the fixed income markets as the players once again became apprehensive that further tightening by the Federal Reserve was imminent.
Continuing inflation, an economy that refuses to roll over and play dead, continued consumer spending as evidenced by the large jump in consumer spending and the increase in retail sales in March plus a strong demand for short-term credit all argue for further tightening on the part of the central bank.
A prolonged Teamsters strike would have acted as a safety-valve to ease some of the pressures but once the quick settlement was reached, the market perceived that it was just a matter of time before the Fed acted.
So we once again played the "anticipation" game and buyers backed away from virtually all of the new issues.
In the corporate area, the triple A Chesapeake and Potomac Telephone issue was only 60-70 percent sold at its' original offering price of 9.58 percent. When the issue was freed for trading, it quickly fell to a 9.65 percent level.
The same could be said for the BAA Pacific and Power and Light Co. issue. Originally priced to return to 10.32 percent, the bonds broke down to a 10.37 percent level after being only 50-60 percent sold.
The Kingdom of Sweden issue faired much better. Even after being increased from $150 million to $200 million, the "Yankee" bonds sold well, returning 9.63 percent for a 7-year maturity. It was estimated that 75 percent of the issue was purchased by foreigners.
The municipal market experienced equally tough sledding, many negotiated issues, especially the housing bonds, had to be repriced, while other loans like the $150 million State of Oregon's had to be sold by doing "down business." That is, the prices were lowered and yields were increased in order to faciliate sales.
Buyers simply backed away or headed for the sidelines in "anticipation" of doing "down business" or feeling that future issues would bear higher rates of return.
Currently the inventory on municipal dealers shelves is $1.10 billion, as reflected in the "Blue List," the dealers' trade publication of their issues for sale. This is the highest level for 1979. Fortunately the new issue calendar has fallen off, but a problem does exist in the large amount of unsold bonds.
Since the municipal market is high in price against the Treasury and corporate markets, prices and higher yields are probably in order.
Even the new Treasury 15-year bond, which came with an average return of 9.15 percent, sold off on the first day of trading to the 9.18 percent level.