Interest rates continued to move higher through the first part of last week. Every issue that was sold came at record levels. But as these new issues came to the marketplace, they received an excellent reception.
Consider these offerings. In the Treasury area, the new 5-year notes came with an average return of 14.39 percent. The coupon for this issue was 14 3/8 percent, the highest coupon ever placed on a Treasury issue.
Three Treasury bill offerings also set records. The coupon equivalent yield for the 3-month bill was 14.43 percent, for the 6-month was 14.88 percent and for the one-year bill was 15.28 percent.
Four new issues sold successfully in the corporate area for the first time in many weeks. Oddly enough all four issues carried single-A ratings. The 8-year Pacific Telephone notes were 15 1/8 percent at par; the 7-year Public Service of Colorado notes were 15 percent at par; the 40-year Pacific Telephone debentures were 15 1/2 percent priced at a slight discount to return 15.55 percent, while the 30-year Florida Power and Light issue were 15 1/4 percent coupons priced at par.
Only two long municipal loans sold. The Commonwealth of Pennsylvania issue was priced cheaply with dramatic returns, and this helped the issue to sell out by the second day. The returns ran from 7.50 percent in 1980 to 9.30 percent in 1998 and 1999. These returns are most attractive, especially for residents of the Commonwealth.
The other major issue, the $150 million double-A-rated Nebraska housing bonds, had to be repriced four times but it finally sold out. The longest term bonds were 9 7/8 percent at par. Initially they were priced at 9 1/2, then 9 3/4, then 10 and finally back to 9 7/8.
By Wednesday rumors surfaced concerning the possibility that wage and price controls or credit controls were being considered. The market began to pick up a head of steam. By Thursday the rumors grew stronger and a rally was under way. All of the new taxable issues moved to premiums, especially the 5-year Treasury notes.
So it would seem that there are four pieces of information to be gleaned from last week's events. First, that at this time a 15 percent return is attractive to buyers. Second, a 14 percent or higher return on short Treasuries is defintely attractive. Third, if there is no positive announcement from Washington concerning controls soon, the market will fall on its face. Fourth, that the municipal market is still weak and struggling to find a floor. This market remains under pressure from the heavy stream of housing issues.
The rally and improved market tone brought forth a rash of new corporate issues scheduled to be sold this week. One interesting issue is the $250 million Citicorp floating-rate note. Check your brokers for more information concerning this and other new taxable issues.
People in high income tax brackets, should look at the numerous high-rated one-, 2- and 3-year notes that are being offered. Last week 9 percent was placed on a 3-year Virginia housing note and 9 1/2 percent was placed on a 2-year Public Service of Colorado pollution-control issue. This is one of the few times where the return on short paper is equal to the returns on longer paper.