The municipal market was again weaker yesterday, following Treasury market yields, which continued to push higher.
Traders said tax-exempt yields were higher by three to five basis points overall.
"The market came in with the overseas market weaker and Treasury bond market off pretty good," a trader in New York said. "You're starting to see a fair amount of bid-wanteds. We richened up in the short-end [Monday] because of the hits to the Treasuries and Libor. Now you're seeing a continuation of that sell-off with the arbs and the cross-sellers. The market is down three to five basis points. Five may be a little high, but it's at least three."
Trades reported by the Municipal Securities Rulemaking Board yesterday showed losses. Bonds from an interdealer trade of California 5s of 2037 yielded 5.5%, up three basis points from where they traded Monday. Bonds from an interdealer trade of New York City Municipal Water Finance Authority 5s of 2035 yielded 4.66%, up four basis points from where they traded Monday. Bonds from an interdealer trade of insured Florida's Broward County School Board 4.75s of 2033 yielded 4.93%, up two basis points from Monday. Bonds from an interdealer trade of insured Massachusetts Turnpike Authority 5s of 2039 yielded 5.08%, up two basis points from where they traded Monday.
The Treasury market showed losses yesterday. The yield on the benchmark 10-year Treasury note, which opened at 3.99%, finished at 4.11%. The yield on the two-year note was quoted near the end of the session at 2.91% after opening at 2.71%.
Flattening of the yield curve, both in the U.S. and abroad, is related to changing expectations of future policy-setting actions by the Federal Reserve, according to Bill Hornbarger, fixed-income strategist for Wachovia Securities.
"If you look at the [Fed] futures contracts, they're really re-pricing the expected Fed outcome, perhaps even a little too aggressively. Futures contracts are starting to price [a Fed increase] happening before the end of the year. The front end is really taking on water, as you can see in the two-year [Treasury] note."
In the new-issue market yesterday, RBC Capital Markets priced $189.9 million of unlimited-tax refunding bonds for the Dallas County Utility and Reclamation District in two series. Bonds from the $94.95 million Series A mature 2009 through 2022, with term bonds in 2025 and 2029. Yields range from 2.9% in 2009 to 5.375% in 2029. Bonds from the $94.95 million series B mature 2009 through 2022, and 2025 through 2029. Yields range from 2.9% in 2009 to 5.375% in 2029.
Bonds from both series are callable at par in 2017. The bonds are insured by Ambac Assurance Corp. and have underlying credit ratings of Baa3 from Moody's Investors Service, BBB-plus from Standard & Poor's, and BBB from Fitch Ratings.
JPMorgan priced $143.2 million in revenue bonds for the Maryland Health and Higher Educational Facilities Authority for the University of Maryland Health System. Bonds mature 2009 through 2020, with term bonds in 2024, 2028 and 2031. Yields range from 2.6% on a 4% coupon in 2009 to 5.25% on a 5% coupon in 2031. The bonds, which are callable in 2018, are insured by Ambac, and have underlying credit ratings of A3 from Moody's and A from Standard & Poor's and Fitch.
Fresno County, Calif., competitively sold $95 million in tax and revenue anticipation notes to Citi at a true interest cost of 1.64%. The notes mature in June 2009 with a 3% coupon, and are rated SP-1-plus by Standard & Poor's.
Merrill Lynch & Co. priced $80.7 million in general obligation bonds for Baltimore, some of which are taxable. Bonds from the $53.2 million, tax-exempt Series A mature 2009 through 2028, with yields ranging from 1.85% on a 4% coupon in 2009 to 4.46% on a 4.25% coupon in 2028. Bonds from 2012 to 2019, one bond from 2021 and bonds from 2022 through 2028 are insured by Financial Security Assurance Inc. The bonds, which are callable at par in 2018, have underlying ratings of Aa3 from Moody's and AA-minus from Standard & Poor's. The pricing also includes a $27.5 million taxable Series B.
Lehman Brothers priced $50 million in single-family housing revenue bonds for the Massachusetts Housing Finance Authority, some of which are subject to the alternative minimum tax. Bonds from the $45.3 million series 134 are subject to the AMT and mature 2009 through 2018, with term bonds in 2023, 2028, 2033 and 2038. All bonds are priced at par on coupons ranging from 3.2% in 2009 to 5.6% in 2038. The bonds, which are callable at par in 2018, have expected ratings of Aa2 from Moody's and AA from Standard & Poor's.
Bonds from the $4.7 million series 135, which is not subject to the AMT, mature 2010, 2011 and 2014 through 2017. All bonds are priced at par, with yields ranging from 2.6% in 2010 to 3.95% in 2017. The bonds, which are not callable, have ratings of Aa2 from Moody's and AA from Standard & Poor's.
The economic calendar was fairly light yesterday. However, the stream of economic data releases pickup tomorrow with initial jobless claims for the week ended June 7, and continuing jobless claims for the week ended May 31 will be released, alongside May import prices, May retail sales, April business inventories, and April business sales. Then, Friday, the May consumer price index and core CPI will be released, along with the preliminary June University of Michigan consumer sentiment index.
Economists polled by IFR Markets are predicting 365,000 initial jobless claims, 3.120 million continuing jobless claims, a 0.5% rise in retail sales, a 0.7% increase in retail sales excluding autos, a 0.3% gain in business inventories, a 1.8% uptick in business sales, 0.5% growth in the CPI, a 0.2% jump in the core CPI, and a 59.8 Michigan sentiment index.
