The municipal market was slightly firmer yesterday, as market participants eased their way back from the three-day holiday weekend.
"It's been a quiet day, but the market is noticeably firmer," a trader in Los Angeles said. "We're improved probably about two basis points overall on the day, but there wasn't a whole lot of activity."
Trades reported by the Municipal Securities Rulemaking Board yesterday showed gains. A dealer sold to a customer West Contra Costa, Calif., Unified School District 6s of 2027 at 5.57%, down two basis points from where they were sold Thursday. A dealer bought from a customer insured Massachusetts Development Finance Agency 4.5s of 2032 at 4.77%, two basis points lower than where they traded Thursday. Bonds from an interdealer trade of Columbus, Ohio, 4.25s of 2030 yielded 4.85%, down two basis points from where they were sold Thursday.
"It's very quiet, with people just adjusting after the long weekend," a trader in New Jersey said. "People are dusting things up and trying to figure out how things will shape up for the week."
The Treasury market showed some gains yesterday. The yield on the benchmark 10-year Treasury note, which opened at 3.98%, finished at 3.94%. The yield on the two-year note was quoted near the end of the session at 2.49% after opening at 2.53%.
The economic calendar was light yesterday. However, a slate of economic data will be released this week, beginning today with wholesale inventories and wholesale sales. On Thursday, initial jobless claims for the week ended July 5 will be released, along with continuing jobless claims for the week ended June 28. Friday will see the release of the preliminary University of Michigan consumer sentiment index for July.
Economists polled by IFR Markets are predicting a 0.7% rise in wholesale inventories, a 0.7% climb in wholesale sales, 399,000 initial jobless claims, 3.125 million continuing jobless claims, and a 56.0 Michigan sentiment index.
In a weekly report, Matt Fabian, managing director at Municipal Market Advisors, wrote that this week, "momentum implies lower yields, and we expect an increase in secondary market trading after valuations were cheapened to begin the month, reducing the apparent discount sellers need to swallow in order to move paper."
"Price momentum is now strongest five to 14 years, but the long end of the yield curve looks uniformly aggressive," he added. "Pricing of earlier maturities may have been dulled by the exceptionally high yields available for [MBIA Insurance Corp.]- and [Ambac Assurance Corp.]-insured VRDOs that have poured out of money market funds who fear those insurers dipping below investment grade. Overall, market confidence continues to weaken in the bond insurers, including [Financial Security Assurance Inc.]; with credit prospects for those companies deeply suspect, we advise against positions dependent on any financial guaranty ratings for performance or liquidity."
A $1 billion North Texas Tollway Authority revenue refunding and a handful of hefty note deals will headline the fairly brisk post-holiday activity in the primary market this week as part of an expected $5.96 billion of competitive and negotiated new-issue volume, according to Thomson Reuters. Last week the market saw a revised $3.39 billion in total volume.
The Texas deal is the largest of the week and is slated to be priced by Lehman Brothers on Thursday with a structure that is heavily weighted on the long end of the yield curve with bonds maturing from 2030 to 2038. The Series 2008 F bonds are rated A3 by Moody's Investors Service and BBB-plus by Standard & Poor's. The second-tier revenue refunding bonds, which are secured by tolls and other revenues of the NTTA, will retire a portion of its Series 2007 bond anticipation notes.
A trio of note deals, meanwhile, will be led by a $977.6 million tax and revenue anticipation issue from Los Angeles. The notes, which are expected to be priced today in the competitive market, are rated MIG-1 by Moody's, SP1-plus by Standard & Poor's, and F1-plus by Fitch Ratings.
Elsewhere in the state, Sacramento County will bring $440 million of Trans to the competitive market today. The notes are rated MIG-1 by Moody's and SP1-plus by Standard & Poor's. The short-term activity will continue with a $395 million sale of tax anticipation notes from Harris County, Tex., which are rated F1-plus by Fitch and are expected to be competitively priced today.
Back in the long-term market, Washington will issue a three-pronged general obligation competitive offering tomorrow totaling $823 million. The three series consist of $492.5 million of tax-exempt various-purpose GOs maturing from 2014 to 2033, $260 million of tax-exempt motor vehicle fuel-tax GOs maturing from 2009 to 2033, and $70.5 million of taxable GOs maturing from 2009 to 2014. The state's full faith and credit pledge is rated Aa1 by Moody's, AA-plus by Standard & Poor's, and AA by Fitch.
In the new-issue market today, First Southwest Co. priced $23.8 million of certificates of obligation for Montgomery County, Tex. The bonds mature from 2010 through 2027, with yields ranging from 2.72% with a 3.5% coupon in 2010 to 4.74% with a 4.625% coupon in 2027. The bonds, which are callable at par in 2017, are insured by FSA. The underlying credit is rated Aa3 by Moody's and AA by Standard & Poor's.
Bryan, Tex., competitively sold $11.1 million of combination tax and revenue certificates of obligation to UBS Securities LLC, with a true interest cost of 4.49%. The bonds mature from 2009 through 2028, with yields ranging from 2.25% with a 5% coupon in 2009 to 3.75% with a 4% coupon in 2016. Bonds maturing from 2017 through 2028 were not formally re-offered. The bonds, which are callable at par in 2018, are insured by FSA.
