Short End Is Firmer, Long End Is Weaker

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The municipal market was mixed overall, with tax-exempt yields down as much as two or three basis points on the short end, while yields were up about one basis point on the long end. “We’re getting demand from dealers, institutions, retail, and individuals,” a trader in San Francisco said. “Relative to Treasuries, munis have a lot of yield, maybe more than they should given what’s going on. The underlying value is still there and people are realizing it.”In the new-issue market yesterday, the Alabama Public School and College Authority competitively sold $1.1 billion of capital improvement bonds to Lehman Brothers at a true interest cost of 4.18%. The bonds mature from 2008 through 2017, with yields ranging from 3.33% with a 5% coupon in 2013 to 4.64% with a 2.5% coupon in 2027. Bonds maturing from 2008 through 2012, in 2014, and from 2019 through 2021 were not formally reoffered. The bonds are callable at par in 2017. Financial Security Assurance Inc. insures bonds maturing in 2027, and the remainder of the bonds are uninsured. Moody’s Investors Service rates the underlying credit Aa2 and Standard & Poor’s rates it AA.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 seven basis points over the curve. Bonds maturing from 2022 through 2025 were widest to the scale, with yields 12 basis points over.The Alabama authority last competitively sold capital improvement bonds in March 2006. Banc of America Securities LLC won that $52.5 million deal with a true interest cost of 4.23%. The bonds mature from 2007 through 2026, with yields ranging from 3.48% with a 4% coupon in 2008 to 4.42% with a 4.25% coupon in 2026. Bonds maturing in 2007 and from 2020 through 2024 were not formally reoffered. The bulk of the deal came to market uninsured, though bonds maturing in 2018, 2025, and 2026 were backed by MBIA Insurance Corp.Among 5% coupon paper in the deal, all bonds were priced 10 basis points over that day’s MMD triple-A yield curve.The Treasury market was slightly weaker yesterday. The yield on the benchmark 10-year Treasury note, which opened at 3.89%, finished at 3.94%. The yield on the two-year note was quoted near the end of the session at 2.90% after opening at 2.88%.In economic data released yesterday, final third-quarter non-farm productivity came in up 6.3%, after a 4.9% rise in the previous reading. Additionally, final third-quarter unit labor costs dipped 2.0% after a 0.2% drop in the earlier report for the quarter. Economists polled by IFR Markets had predicted a 5.7% rise for productivity and a 1.1% decline in unit labor costs.Factory orders rose 0.5% in October, after a revised 0.3% uptick in September. Factory orders excluding transportation climbed 0.6% in October after a revised 1.6% rise the month before. Economists polled by IFR had predicted no change in factory orders and a 0.3% dip in orders excluding transportation.The Institute for Supply Management’s non-manufacturing business activity composite index came in at 54.1, after a 55.8 reading previously. Economists polled by IFR Markets had predicted a 54.8 reading.In other new-issue market activity, Lehman Brothers priced $744.9 million of bonds for the Puerto Rico Public Buildings Authority in four series. Bonds in the largest series — worth $328.5 million — mature from 2013 through 2027, with term bonds in 2032 and 2037. Yields range from 4.06% with a 5% coupon in 2013 to 5.11% with a 5% coupon in 2037. The bonds are callable at par in 2017. Bonds in the next largest series — worth $278.4 million — mature from 2009 through 2023, with term bonds in 2031. Yields range from 3.68% with a 5.25% coupon in 2009 to 5.12% with a 6.25% coupon in 2031. The bonds are not callable. Bonds in the third largest series — worth $135 million — mature in 2034 and 2035. Yields range from 4.62% with a 5.75% coupon in 2034 to 4.20% with a 5.50% coupon in 2035. These bonds are insured by Ambac Assurance Corp., and will be subject to a mandatory tender option in 2017. The deal also contains a $3 million taxable portion. All bonds are rated Baa3 by Moody’s and BBB-minus by Standard & Poor’s. Siebert, Brandford, Shank & Co. priced $527.1 million of general obligation bonds for Connecticut in three series. Bonds in the largest series — worth $300 million — mature in 2008 through 2027. Yields range from 3.08% with a 4% coupon in 2009 to 4.40% with a 4.375% coupon in 2027. Bonds maturing in 2008 were not formally reoffered. These bonds are callable at par in 2017. Bonds in the next largest series — worth $181.1 million — mature in 2008 and 2010 through 2015. Yields range from 3.15% with a 5% coupon in 2010 to 3.50% with a 5% coupon in 2015. Moody’s rates the bonds Aa3 and Standard & Poor’s and Fitch Ratings give them a AA. The deal also contained a $46 million taxable component.Citi priced $415 million of transportation revenue bonds for New York’s Metropolitan Transportation Authority. The bonds mature in 2008 through 2029, with term bonds in 2033 and 2037. Yields range from 3.23% with a 4% coupon in 2009 to 4.69% with a 5% coupon in 2037. Bonds maturing in 2008 were priced via sealed bid. The bonds are callable at par in 2017. Moody’s rates the bonds A2 and both Standard & Poor’s and Fitch give them an A.The Port Authority of New York and New Jersey competitively sold $400 million of consolidated bonds to Merrill Lynch & Co. with a TIC of 4.63%. The bonds mature from 2017 through 2032, with term bonds in 2034 and 2037. Yields range from 3.77% with a 4% coupon in 2017 to 4.47% with a 5% coupon in 2031. Bonds maturing in 2018 through 2020, 2022, 2024 through 2028, 2032, 2034, and 2037 were not formally reoffered. The bonds are callable at par in 2017. Ambac insures bonds maturing in 2022, 2024 through 2028 and 2034, and the underlying credit of all bonds is rated AA-minus by Standard & Poor’s and Fitch. In other news, following its failure to competitively sell $706 million of GO bonds Tuesday due to technical problems, Pennsylvania announced that it will try again to sell the bonds next Thursday, Dec. 13. Rick Dreher, director of commonwealth’s Bureau of Revenue, Cash Flow, and Debt, said it remains to be determined whether they will again use Grant Street Group’s MuniAuction electronic bidding system, or switch to Ipreo’s Parity.Finally, New York City announced yesterday that, subject to market conditions, it will refund $600 million to $800 million of fixed-rate GO debt next Wednesday, with a two-day retail order period beginning Monday. The bonds will be priced by Morgan Stanley.

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