Munis Much Weaker After Wednesday’s Rebound

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The municipal market was substantially weaker yesterday, as the impact of Wednesday’s stock market rebound, which made Treasuries about-face, trickled into tax-exempts.

“What you’re seeing in the market right now is a reflection of what was started in the latter part of [Wednesday’s] session,” a trader in New York said. “Stocks turned around, which turned Treasuries around, but it was late enough that it didn’t really effect munis until [yesterday] morning. But we’re feeling it now.”

Traders said tax-exempt yields were higher by three to five basis points on the short end, and as much as 10 basis points on the long end.

“We’ve given back a lot of the gains, at least the gains from [Wednesday],” a trader in Los Angeles said. “Especially on the long end. We’ve given back way more on the long end [yesterday] than we gained in the last two days combined. The short end is still very expensive though, despite what’s happened [yesterday].”

Trades reported by the Municipal Securities Rulemaking Board yesterday showed losses. A dealer sold to a customer California 5s of 2032 at 4.80%, up seven basis points from where they were sold Wednesday. A dealer sold to a customer Washington 5s of 2033 at 4.38%, eight basis points higher than where they traded Wednesday. Bonds from an interdealer trade of Ohio 5s of 2018 yielded 3.43%, up five basis points from where they were sold Wednesday.

The Treasury market showed losses yesterday. The yield on the 10-year Treasury note, which opened at 3.60%, finished at 3.67%. The yield on the two-year note was quoted near the end of the session at 2.26%, after opening at 2.14%.

In economic data released yesterday, initial jobless claims for the week ending Jan. 19 came in at 301,000, after a revised 302,000 the previous week. Additionally, continuing jobless claims for the week ending Jan. 12 came in at 2.672 million, after a revised 2.747 million the prior week. Economists polled by IFR Markets had predicted 321,000 initial jobless claims and 2.700 million continuing jobless claims.

Also, existing home sales came in at 4.890 million in December, after coming in at five million the previous month. Economists polled by IFR Markets had predicted 4.950 million existing home sales.

In the new-issue market yesterday, Citi priced $232.3 million of revenue bonds for Texas’ Camino Real Regional Mobility Authority. The bonds mature from 2012 through 2022, with yields ranging from 3.27% with a 5% coupon in 2012 to 4.34% with a 5% coupon in 2022. The bonds, which are callable at par in 2018, are rated A2 by Moody’s Investors Service and A by Standard & Poor’s.

Lehman Brothers priced $195 million of lease revenue bonds for the Pima County, Ariz., Industrial Development Authority. The bonds mature from 2010 through 2028, with term bonds in 2033, 2038, and 2039. Yields range from 2.53% with a 4% coupon in 2010 to 5.00% priced at par in 2039. The bonds, which are callable at par in 2018, are rated Aa2 by Moody’s and AA by Standard & Poor’s.

Lehman also priced $182.9 million of consolidated revenue bonds for the Trustees of Indiana University. The bonds mature from 2009 through 2028, with a term bond in 2038. Yields range from 2.22% with a 5% coupon in 2009 to 4.45% with a 5% coupon in 2038. The bonds, which are callable at par in 2018, are rated Aa1 by Moody’s and AA by Standard & Poor’s.

Merrill Lynch & Co. priced $141 million of taxable revenue bonds for the Southern California Public Power Authority in three series. The largest series, worth $80.9 million, matures from 2009 through 2017, with term bonds in 2024 and 2032. The second largest series, worth $43.6 million, matures from 2008 through 2014, with term bonds in 2024 and 2032. And the smallest series, worth $16.6 million, matures from 2008 through 2014, with a term bond in 2032. The bonds are insured by Financial Security Assurance Inc.

Banc of America Securities LLC priced $50 million of adjustable-rate gas supply refunding revenue bonds for the Illinois Development Finance Authority. The bonds mature in 2033, yielding 3.75% priced at par. Moody’s rates the credit A1 and Standard & Poor’s rates it A-minus.

California’s Sonoma County Transportation Authority competitively sold $46 million of sales tax revenue bonds to Goldman, Sachs & Co. with a true interest cost of 3.74%. The bonds mature from 2013 through 2024. Yields range from 3.79% with a 5% coupon in 2022 to 4.20% with a 4% coupon in 2024. The remaining bonds were not formally reoffered. The bonds, which are callable at par in 2017, are rated AA by Standard & Poor’s.

Also, Bellevue, Wash., competitively sold $14.2 million of limited-tax GO bonds to Morgan Stanley with a TIC of 3.92%. The bonds mature from 2008 through 2027, with yields ranging from 2.30% with a 3% coupon in 2009 to 4.35% with a 4.25% coupon in 2027. Bonds maturing in 2008 and 2022 were not formally reoffered. The bonds, which are callable at par in 2017, are rated Aa1 by Moody’s and AAA by Standard & Poor’s.

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