Munis Firmer as Treasuries Show Improvement

200711292ueff9t4-1-market-news-d.jpg

The municipal market was firmer yesterday, following the improving Treasury market. Traders said tax-exempt yields were lower by about three basis points. “I think a rally in Treasuries is going to firm up the bid in munis, but I don’t think as much business is being done at these new spreads,” a trader in New York said. “I don’t think anyone is a believer that Treasuries can hold these levels. It looks like the credit issues are worming their way back into the market, and that’s probably due to recapitalization requirements for a couple of these insurance companies.” In the new-issue market yesterday, UBS Securities LLC priced $1 billion of various purpose general obligation bonds for California. The bonds mature from 2008 through 2033, with a term bond in 2037. Yields range from 3.44% with a 4% coupon in 2011 to 4.86% with a 5% coupon in 2037. Bonds maturing in 2008 were priced via sealed bid. The bonds, which came to market uninsured, are callable at par in 2017. Moody’s Investors Service rates the bonds Aa1, while Standard & Poor’s and Fitch Ratings both assign a rating of A-plus. Among 5% coupon paper in the deal, bonds maturing in 2013 were tightest to Tuesday’s Municipal Market Data triple-A yield curve, with yields 27 basis points above the curve. Bonds maturing in 2023 through 2026, and 2028 through 2032, were widest to Tuesday’s curve, with yields 49 basis points above the scale, six to eight basis points wider than similar debt in a California GO sale last month. When California last came to market with $2.5 billion of various purpose GOs in October Goldman, Sachs & Co. underwrote the deal in two series. Bonds from the larger of the two October series, $1.5 billion of new money, came to market mostly uninsured. Those bonds mature from 2008 through 2010 and from 2022 through 2027, with term bonds in 2032 and 2037. Yields range from 3.34% with a 3.3% coupon in 2009 to 4.75% with a 5% coupon in 2037. Bonds maturing in 2022 are insured by XL Capital Assurance Inc., and bonds maturing in 2023 are insured by Financial Guaranty Insurance Co., while all other bonds are uninsured. Also, bonds maturing in 2008 were not formally re-offered. Bonds from the $1 billion refunding series, however, featured a steady diet of insured paper. Bonds mature from 2009 through 2025, with yields ranging from 3.34% with a 3.3% coupon in 2009 to 4.52% with a 4.5% coupon in 2025. Portions of bonds maturing from 2014 through 2023 are insured by Assured Guaranty, Ambac Assurance Corp., FGIC, XL Capital, and MBIA Insurance Corp. All remaining bonds are uninsured, and bonds maturing in 2008 were not formally re-offered. Among uninsured 5% coupon paper in the deal, bonds maturing in 2012 were tightest to that day’s MMD triple-A yield curve, with yields 21 basis points over the curve. Bonds maturing in 2032 and 2037 were widest to the scale, with yields 41 basis points over. Among insured 5% coupon paper in the deal, Assured Guaranty-insured bonds maturing in 2014 were tightest to that day’s MMD triple-A yield curve, with yields 17 basis points over the curve. MBIA-insured bonds maturing in 2020 and 2021 were widest to the scale, with yields 23 basis points over.The Treasury market showed gains yesterday, erasing Tuesday’s losses. The yield on the benchmark 10-year Treasury note, which opened at 4.03%, was quoted near the end of the session at 3.95%. The yield on the two-year note finished at 3.07%, after opening at 3.14%. In economic data released yesterday, the preliminary third quarter gross domestic product came in at 4.9%, after a 3.9% reading the previous month. Economists polled by IFR Markets had predicted a 4.8% reading. Initial jobless claims for the week ended Nov. 24 came in at 352,000, after a revised 329,000 the previous week. Additionally, continuing jobless claims for the week ended Nov. 17 came in at 2.665 million, after a revised 2.553 million the prior week. Economists polled by IFR Markets had predicted 330,000 initial claims and 2.600 million continuing claims. Also, new home sales came in at 728,000 in October, after a revised 716,000 the previous month. Economists polled by IFR Markets had predicted 753,000 sales. In other new-issue activity, the Los Angeles Unified School District competitively sold $600 million of tax and revenue anticipation notes to various bidders, with true interest costs in the range of 3.13% to 3.16%. The Trans mature in 2008 and have a coupon of 4%. They are rated MIG-1 by Moody’s and SP-1-plus by Standard & Poor’s. JPMorgan priced $250 million of revenue bonds for the Louisiana Local Government Environmental Facilities and Community Development Authority. The bonds, priced at par, mature in 2032 with a coupon of 6.75%. The bonds are callable at par in 2017. Moody’s assigns a rating of Ba3 to the bonds, while Standard & Poor’s assigns a BB-plus rating. JPMorgan priced $133.5 million of revenue bonds for the Connecticut Health and Educational Facilities Authority. The bonds mature from 2012 through 2028. Yields range from 3.34% with a 5% coupon in 2012 to 4.58% with a 4.375% coupon in 2028. The bonds are callable at par in 2017. MBIA insures the bonds, whose underlying credit is rated A2 by Moody’s and A-minus by Standard & Poor’s. Banc of America Securities LLC priced $51.3 million of water and sewer systems revenue bonds for Tampa, Fla. The bonds mature from 2008 through 2027, with term bonds in 2032 and 2037. Yields range from 3.30% with a 4% coupon in 2010 to 4.58% with a 5% coupon in 2037. Bonds maturing in 2008 and 2009 were not formally re-offered. The bonds are callable at par in 2017. The bonds are rated Aa2 by Moody’s and AA by both Standard & Poor’s and Fitch. Economic data today will set the tone going into December and a data-heavy week. Today October personal income and consumption, the October core personal consumption expenditures deflator, the November Chicago purchasing managers’ index, and October construction spending will be released.Economists polled by IFR are predicting a 0.4% level for personal income, 0.1% for the PCE, 1.8% for the core PCE deflator, a reading of 49.7 for the Chicago PMI index, and a drop of 0.3% in construction spending.

For reprint and licensing requests for this article, click here.
MORE FROM BOND BUYER