Is a credit crunch on the way? This is a question that is surfacing as interest rates on coupon bonds are setting new records. Money market rates are still below their peak levels of last December, but rates on longer maturities of Treasuries, municipals and corporates are establishing new highs daily.
Long Treasuries sold at lower prices to yield 13.48 percent. The Michigan Bell Telephone issue, which was priced to return a record-setting 15.93 percent, sold poorly and broke down in price to yield 16.35 percent. A single A rated General Telephone of Ohio issue was priced to return 16.7 percent and within two hours broke down in price to return 17 percent.
The Intermountain Power Authority in Utah had $208 million of revenue bonds due in 2020, priced as 12's at par. These bonds are at best only half sold and a sizable price break is expected this week.
The problems remain the same for the fixed income markets. Investors are uncertain as to the direction of the economy, inflation and the administration's economic program. Dealers are loaded with inventory on which they have sustained huge losses and consequently their capital is being strained under the burden of the inventories and the endless supply of new issues.
Both the dealers and the investors watch with horror as issue after issue ends up a disaster. This has caused investors to run to the short maturities and they have practically abandoned the longer market.
But as rates keep heading to the moon and both investors and dealers become more demoralized, one wonders if a credit crunch could be nearby. Since the Federal Reserve was sharply criticized by a Treasury official a few weeks ago, the Federal funds rate has risen 500 basis points. This may be a technical aberration or it could be a move to push rates to a level to bring the economy to a halt. Only time will tell, but to the dealers, things are mighty tough.
Center stage in the marketplace this week will be the Treasury's $6.75 billion quarterly refunding that will feature three different issues. The interesting point about this refunding is that it will occur when Treasury returns are at their all-time highs.
A three-year note will be auctioned on Tuesday and will come in minimum denominations of $5,000. A 10-year note will be sold on Wednesday and a 30-year bond will offered on Thursday. The latter two issues will be available in minimums of $1,000.
This week may see the largest amount of short-term, tax-exempt notes ever marketed. $1.9 billion of HUD-backed project notes will be sold Tuesday, and $3 billion of New York State TRANS are expected too. The project notes mature in the months of October through January and should return approximately 8 percent.
The TRANS mature in September and December of 1981 and January and March of 1982. A top MIG-1 rating is expected and they should return in the vicinity of 9 percent.