960403

Corporate bonds

up in line with

Treasuries

NEW YORK: US high-grade corporate bonds closed higher in line with US Treasuries but RJR Nabisco underperformed as traders sold on the chance that where there's smoke there just might be fire, dealers said on Tuesday.

The sell-off came after Texas Attorney General Dan Morales filed suit seeking reimbursement of the state's share of smoking-related Medicaid expenses from RJR and other tobacco companies.

RJR Nabisco Holdings debt widened against Treasuries by three to five basis points, depending on maturity, on Tuesday.

RJR called the suit "meritless" in a prepared statement.

Other tobacco debt held firm, RJR debt has suffered more than other firms in the latest round of tobacco woes.

Time Warner moved in the opposite direction outperforming Treasuries by about three to four basis points following a $1.5 billion preferred offering. The deal, which was upped from $1.0 billion on strong demand, will be used to retire existing debt.

Pacific Bell lost two basis points on Tuesday after tightening by about seven basis points Monday on news Pacific Telesis Group plans to merge with its larger and healthier Baby Bell sibling, SBC Communications Inc.

In the primary market, Yale University chose a 100-year maturity on Tuesday for its first foray into the taxable market. The university priced $125 million of triple-A rated notes to yield 70 basis points over the off-the-run 30-year Treasury bond. The deal is noncallable for 30-years.

A spokesman for Lehman Brothers, which was lead manager on the deal said that Yale had reached the amount of its cap on tax exempt debt. The choice to go with a 100-year issue was decided as late as Tuesday mroning when Yale asked Lehman to change the deal which was originally slated to run 30-years.

Lehman originally marketed the deal as 30-year and hoped to price it at 45 basis points over treasuries but later marketed the 100-year issue with price-talk at 70-73 basis points, the spokesman said.

Yale followed Harvard, Standford and Columbia which have all recently dipped into the taxable market.

In the junk-bond market prices rose about an eighth to a quarter point in mild trading.

Bally Entertainment Corp debt rose about three points across the board following a TV report that ITT Corp and Hilton Hotels may be interested in buying it, traders said.

Secondary trading in junk-bonds was quiet on Tuesday but dealers were still busy. A slow of new issues are set to price in the coming days hoping to put some of the fresh money in the market to play before it disappears again. Flows of funds in and out of high-yield mutual funds have been volatile in recent months. Inflows for last week were at the highest level since December 1994.

In the government securities market, the benchmark US 30-year bond closed 15/32 higher at 92-6/32 to yield 6.60 percent.-Reuter