The demand for bonds now is incredible." This remark by a bond salesman best sums up the market last week. All sectors of the market continued to surge. An issue would be priced at a level that the market felt on one day was too expensive, but the next day the issue would be all sold.
Some corporate issues would be all circled out within hours after the sale of the issue was first announced. This was true even though the issue would not be priced for two or three days.
Even the tax-exempt housing issues, which had lagged behind market advance, sold out quickly. The long maturities now return 9 to 10 percent, and buyers purchased all the bonds in sight. With the steep rate declines, more housing issues will continue to flood the market. These issues offer the highest returns available in the tax-exempt area. To be safe, stick with the double A state names that have the VA and FHA insurance. The yield is less, but there is more protection for the buyer.
There were nine industrial bond offerings totaling $1.325 billion. All but one were long bonds. The returns ran from 10.875 percent on the triple A Beatrice Co. to 12.5 percent on the Single A rated Kroger Co. More new issues are on the way, so keep your eye on weekly calendars.
One of the most startling yield declines occurred in Treasury bills. Last week's average return on 90-day bills was 195 basis points lower than the week before. And because of buying by foreign central banks, these yields went even lower during the week as prices continued to rise.
As a matter of fact, the Treasury bill market has led to other money market instruments in their steep yield declines. The desire for safety and liquidity plus the renewed buying by foreign central banks has forced bill prices higher and their yields lower.
Two events on Friday further stimulated the rally: the jump in unemployment plus the Federal Reserve's supplying of reserves to the banking system. The market steamed to higher prices and lower yields. We have now, for the first time since September 1978, returned to a positive-yield curve. That is, the three-month Treasury bill returns less yield than the 30-year Treasury bond.
So it is safe to say that interest rates have peaked for this cycle. Rates may go back up, but the deterioration of the economy and the tragic economic news that has been and will be forthcoming will moderate any large price declines. Even so, the yields available are still higher than the returns reached during the last cycle (1974-1975).
This week the Treasury will take center stage in its $7.5 billion quarterly refunding. Three issues will be offered.
a 3 1/4-year note will be auctioned on Tuesday in miniumum denominations of $5,000. A price guesstimate would be 10-10 1/8 percent.
The Treasury will reopen a 9 1/2 yer note on Wednesday. It will come in minimums of $1,000. These nots might come around 10 percent.
On Thursday, a 30-year bond will be offerred in minimums of $1,000 to complete the refunding. A price guesstimate would be 10.25 to 40 percent.
Tenders may be made at the U.S. Treasury in Washington or one of the Federal Reserve Banks or their branches. Individuals should enter noncompetitive bids. Full payment must now be submitted with your tenders.