Despite a busy week of new-issue sales and a great deal of volatility, the bond markets closed a four-day week virtualy unchanged from the prior week. t
Prices went up and down as if tied to a Yo-yo. Poor technical conditions kept bond prices near their lows for the year and their yields close to all-time highs in most maturities. Heavy inventories, few retail buyers and an endless supply of new issues kept the markets off balance.
In spite of all the uncertainties, underwriters were able to market sizeable amounts of new corporate and municipal issues. About $925 million in new corporates and at least $500 million in high-grade municipal bonds were offered.
Both markets continued to use deep discount bonds to sell sizeable issues. The J.C. Penny Co. sold $200 million 30-year bonds with a 6 percent coupon ($60 of interest per bond). The bonds were priced at 42.0634 ($420.63 per bond). At that price the yield to maturity is 14.85 percent and the current return is 14.30 percent.
These discount bonds are attractive to investors because they offer high rates of return and good protection from the high-yielding bonds being called away at par ($1,000 per bond). A shortcoming is that an increment of the appreciation must be reported annually as income for tax purposes over the life of the issue even though the income is not received.
Several other corporate issues were sold with yields ranging from 14.60 percent on a AAA-rated utility to 16.10 percent on a BAA-rated 10-year bond.
The returns on the tax-exempt deals were just as sensational. A AAA-rated Washington Public Power revenue issue returned 11.625 percent on a maturity due in 2012. The state of Connecticut and Louisiana sold issues with record returns that were very well received.
Thursday three large corporate issues totaling $850 million were announced to be sold this week. The fact that these companies are willing to finance at these record-high rates certainly makes one skeptical about the outlook for interest rates over the rest of the year.
One item tax-exempt buyers should look at this week is the $350 million City of Forsyth, Mont., pollution-control revenue bond. This is the largest PCR issue ever sold and is backed by irrevocable letters of credit as to the principal, from Citibank and Morgan Guaranty Trust of New York. The interst has been capitalized in the issue and will be funded from the proceeds. The bonds will mature June 1, 1984, and will come in minimums of $5,000. They will be rated AAA by both services. A price guess would be 8 1/2 percent or more.
For shorter investment, $500 million, tax-exempt, government-backed project notes (part of the issue whose bids were rejected two weeks ago) will be sold Tuesday. With maturities running mainly from seven to nine months, the returns should be somewhere between 7.30 to 7.65 percent.
The Treasury will offer a two-year note this Wednesday in minimun denominations of $5,000. They should return a yield cheaper than 14 percent. These notes may be purchased at the U.S. Treasury in Washington or at any of the Federal Reserve banks. Small investors should enter non-competitive tenders for their bonds.