Munis Start Week Slightly Firmer

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The municipal market was slightly firmer yesterday, following Treasuries.

"We're a bit better, maybe about two or three basis points, but there's not a whole lot going on," a trader in New York said. "I don't imagine that we'll see much of anything going on this week in terms of trading activity. There isn't much supply coming, and whatever people aren't already on vacation are looking forward to the three-day weekend next week."

"It's kind of quiet," a trader in San Francisco added. "There's some retail, but there's definitely a lot more people doing nothing. We're not up as much as governments, that's for sure."

The Treasury market showed gains yesterday. The yield on the benchmark 10-year Treasury note, which opened at 3.88%, finished at 3.78%. The yield on the two-year note was quoted near the end of the session at 2.32% after opening at 2.40%. The yield on the 30-year Treasury finished at 4.40% after opening at 4.47%.

"It's kind of quiet in munis, but there are some pieces trading with Treasuries, so we're probably about two basis points firmer," a trader in Chicago said. "It depends where you are on the curve, but it's definitely one of those days where we just follow Treasuries."

In economic data released yesterday, existing home sales increased 3.1% in July to a seasonally adjusted 5.00 million-unit rate. The sales increase to 5.00 million compared to the 4.940 million-unit pace predicted by IFR Markets' poll of economists and followed a revised drop to a 4.85 million-unit level in June.

A slate of economic data will be released later this week. Today, the August consumer confidence index and July new home sales will be released, followed tomorrow by the July durable goods report, and Thursday by initial jobless claims for the week ended Aug. 23, continuing jobless claims for the week ended Aug. 16, and preliminary second-quarter gross domestic product. Personal income and consumption for July will be released Friday along with the core personal consumption expenditures deflator, the August Chicago purchasing managers index, and the final August University of Michigan consumer sentiment index.

Economists polled by IFR Markets are predicting a 53.0 reading for the consumer confidence index, an annual rate of 525,000 new home sales, a 0.1% uptick in durable good orders, a 0.3% dip in durable goods orders excluding transportation, 427,000 initial jobless claims, 3.400 million continuing jobless claims, 2.7% annual growth rate for GDP, a 0.1% decline in personal income, a 0.2% increase in personal consumption, a 0.3% rise to the core PCE deflator, a 49.8 Chicago PMI reading, and a 62.0 reading for the Michigan sentiment index.

Matt Fabian, managing director at Municipal Market Advisors, wrote in a weekly report that secondary trading activity remained light last week, as it has been for several weeks.

"Traders not on vacation focused on the primary where longer paper has been priced to sell quickly," he wrote. "On the other hand, shorter bonds have been priced more aggressively and are now, by MMA's measure, fairly rich versus institutional demand in the four- to nine-year area."

Fabian also wrote that this week "very thin pre-holiday activity and a light calendar should encourage more influential participants to show stronger prices on hopes to move the market north for quarter-end."

With the Labor Day hiatus on the horizon, activity in the new-issue market will slow to a crawl this week, as the primary will see a small sampling of moderately sized deals.

New-issue volume will dip to $3.09 billion, according to Thomson Reuters, after a revised $4.92 billion last week.

In the week's largest scheduled transaction, a $362.7 million New York State Thruway Authority revenue offering will lead off the negotiated activity when Merrill Lynch & Co. prices the issue tomorrow. The bonds are tentatively structured to mature from 2009 to 2038, according to the preliminary official statement, and the state personal income tax revenue bonds are rated AAA by Standard & Poor's and AA-minus by Fitch Ratings.

The Kentucky Economic Development Finance Authority will come to market with a $343.7 million revenue offering. The sale is expected to be priced by Goldman, Sachs & Co. either today or tomorrow and will carry insurance from Assured Guaranty Corp. It was postponed for a month by officials who were worried about negative implications after Moody's Investors Service put the insurer on watch for a possible downgrade as a result of ongoing risks in the financial guarantor market.

The deal will still be insured by Assured, except for the subordinate bonds. The multi-faceted deal is structured to include $284.4 million of Subseries 2008 A-1 fixed-rate bonds, $29.3 million of Subseries 2008A-2 capital appreciation bonds, $15.5 million of Series 2008B taxable fixed-rate bonds, and $14.5 million of taxable subordinate Series 2008C fixed-rate bonds.

The bonds mature out to 2042, but the exact details of the structure were not available at press time. Proceeds are being sold on behalf of the Louisville Arena project, which, when completed, will be a 22,000-seat, multi-use facility with the University of Louisville men's and women's basketball teams as the primary tenants.

In the new-issue market yesterday, JPMorgan priced $112 million of limited-tax bonds for Tarrant County, Tex. The bonds mature from 2009 through 2026, with yields ranging from 2.13% with a 3.5% coupon in 2010 to 4.65% with a 5% coupon in 2028. The bonds, which are callable at par in 2018, are rated triple-A by Moody's and Standard & Poor's.

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