The Treasury's $16.25 billion, three-issue minirefunding has come and gone, and from all appearances, the offerings were well received in the marketplace. The average return on the four-year note was 11.30 percent; on the seven-year note, 11.85 percent, and on the 20-year bond, 12.04 percent; 89 percent of the seven-year note was purchased by government dealers and was actually not well sold until the market picked up steam Thursday afternoon. Then dealers were able to distribute the issue as bond prices moved higher.
Rumors of another government dealer failure helped spark the market, as investors sought the safety of T bills.
The municipal market has been facing an ever growing new issue calendar. Currently, the 30-day forward supply stands at $4.3 billion. Dealers have been able to reduce the backlog of unsold bonds from the high levels of recent weeks, but inventory remains high, totaling $1.6 billion. Both factors make it difficult for the tax-exempt market to improve, especially if the Treasury market lacks direction. Should the Treasury market continue to improve, the municipal bond market will be able to handle the new issues and reduce inventory much more readily.
Part of this tax-exempt supply has been an abundance of Texas bond issues, which because of the large supply have been priced on the cheap side. Much of this Texas paper is rated triple-A and therefore offers investors top-grade securities at very attractive yields. One segment of this Texas paper is housing-type bonds with MBIA insurance, which carry a triple-A rating by both Moody's and Standard & Poor's credit rating agencies.
The other segment that is attractive is the small Texas school district issues, which are guaranteed by the Texas Permanent School Fund. These issues also are rated triple-A. This arrangement with the PSF has allowed small Texas school districts to gain national exposure because of their credit rating and because of their generous yields. They are worth looking into.
More often than not, when bond investors go to a brokerage house they feel they are not satisfactorily dealt with. Finding someone to handle your bond account can be as important as having a good doctor or a good lawyer. When you walk into a brokerage house, you are generally introduced to the "man of the day" -- usually a young person just starting in the business, and chances are that he or she has been trained to handle stocks but has had very little training in the field of bonds. That comes with experience.
Therefore, I would suggest that an investor who is just entering the fascinating world of bonds should first make inquiries among friends, seeking referrals on account executives who know bonds. If you get nowhere on that score, speak to the manager of a brokerage office. Tell him what your needs are and that you would like to deal with an older account exceutive who knows bonds.
Age translates into experience, and, after all, it does take time to acquire a good background concerning the finer things in life.