The municipal market was firmer yesterday as buyers returned, driving demand and pushing yields lower.
Traders said tax-exempt yields fell by at least five basis points, with the market firmer by as much as 10 basis points in spots.
"The market was on fire," a trader in Los Angeles said. "This was the first rally for all maturities in about two months. It's like there is never going to be another issue of bonds again."
"The state names are trading better than the smaller issuers, but in general there are more buyers in the market," a trader in New York said.
Trades reported by the Municipal Securities Rulemaking Board showed gains. A dealer sold to a customer insured Puerto Rico 6s of 2027 at 7.20%, down eight basis points from where they traded Monday. A dealer sold to a customer Port Authority of New York and New Jersey 5s of 2028 at 5.86%, six basis points lower than where they traded Monday. A dealer sold to a customer insured California 4.25s of 2033 at 6.50%, five basis points lower than where they were sold Monday. A dealer sold to a customer insured Philadelphia 5.25s of 2026 at 6.40%, down seven basis points from where they were sold Monday. A dealer sold to a customer insured New York Metropolitan Transportation Authority 4.75s of 2026 at 5.40%, five basis points lower than where they traded Monday.
In California, trading has experienced a "strong snapback" as the successful sale of the state's revenue anticipation notes last week lured buyers back into the market.
"A lot of the fear is gone," said a trader in California. "The California Ran deal eliminated a lot of concerns."
The massive selling pressures that pushed prices down started to ease Monday and yesterday. Media reports of attractive value in munis also propelled retail buying, the trader said.
"We've been very busy over the last two days," he said. "It's been a combination of things, all positive for a change."
In the new-issue market yesterday, Morgan Stanley priced $375 million of major new infrastructure project revenue bonds for Ohio. The bonds mature from 2009 through 2020, with yields ranging from 3.25% with a 5% coupon in 2010 to 5.60% with a 5.5% coupon in 2020. The bonds, which are callable at par in 2018, are rated Aa2 by Moody's Investors Service, AA by Standard & Poor's, and AA-minus by Fitch Ratings.
Florida's Broward County School District competitively sold $125 million of tax anticipation notes to Banc of America Securities LLC, with a net interest cost of 1.83%. The notes mature in September 2009, yielding 1.80% with a 3.5% coupon. The Tans are rated MIG-1 by Moody's.
Merrill Lynch & Co. priced $104.2 million of Arizona State University system revenue bonds for the Arizona Board of Regents. The bonds mature from 2010 through 2028, with yields ranging from 3.22% with a 4% coupon in 2010 to 6.12% with a 6% coupon in 2028. The bonds, which are callable at par in 2018, are rated Aa3 by Moody's and AA by Standard & Poor's.
The Treasury market showed gains yesterday. The yield on the benchmark 10-year note, which opened at 3.85%, was quoted near the end of the session at 3.73%. The yield on the two-year note, which opened at 1.69%, was quoted near the end of the session at 1.59%. And the yield on the 30-year Treasury bond, which opened at 4.26%, was quoted near the end of the session at 4.21%.
John Canavan, debt strategist at Stone & McCarthy Research in New Jersey, said the Federal Reserve's new facility announced yesterday to protect money market funds from redemptions "would not be a boon" for Treasuries, while adding that "there is still a risk-aversion trade in Treasuries."
A downturn in foreign markets, especially Argentina, weighed on U.S. equities, he said. Treasury traders have also been unable to acquire cash for basis trades, pushing up demand for five- and 10-year Treasuries, according to Canavan.
In other new-issue market activity, JPMorgan priced $45 million of homeowner mortgage revenue bonds for the New York State Mortgage Agency. The bonds mature from 2009 through 2018, with term bonds in 2021, 2028, and 2038. Yields range from 2.875% in 2009 to 6.60% in 2038, all priced at par. The bonds, which are callable at par in 2018, are rated Aa1 by Moody's.
Lakewood Township, N.J., competitively sold $21.8 million of general improvement bonds to UBS, with a true interest cost of 5.37%. The bonds mature from 2009 through 2029, with a term bond in 2031. Coupons range from 4.75% in 2009 to 5.75% in 2031. None of the bonds were formally reoffered. The bonds, which are callable at par in 2018, are insured by Assured Guaranty Corp.
Bayonne, N.J., competitively sold $15.6 million of school bonds to Citi with a TIC of 6.04%. The bonds mature from 2009 through 2030, with all coupons set at 6%, except for bonds maturing in 2030, which carry 6.25% coupons. None of the bonds were formally re-offered. The bonds, which are callable at par in 2018, are insured by Financial Security Assurance Inc.
Lincoln County, N.C., competitively sold $15 million of general obligation bonds to Hutchinson, Shockey, Erley & Co. with a TIC of 5.34%. The bonds mature from 2010 through 2027, with yields ranging from 3.00% with a 5.5% coupon in 2010 to 5.60% with a 5.5% coupon in 2027. Bonds maturing in 2012, from 2017 through 2019 , and in 2022 were not formally re-offered. The bonds, which are callable at par in 2018, are insured by FSA.
The economic calendar was light yesterday.
Patrick Temple-West contributed to this column.
