The municipal market was markedly firmer yesterday, picking up where it left off Tuesday when it surged after the Federal Open Market Committee slashed the federal funds rate target at least 75 basis points, to a range of zero to 0.25% from its previous 1.00%.
Traders said tax-exempt yields were firmer by seven to nine basis points overall, with gains as much as 12 to 15 basis points on the long end as market participants largely jumped off the sidelines and into buying mode.
"Things really firmed up yesterday after the Fed decision, and we're picking up right from there today," a trader in New York said. "There's more activity in the secondary than there was yesterday, and we're seeing steeper gains as well. We're better by at least six basis points right now, and in some spots, it could be up 10 or more. But through most of the curve, you're six, seven, eight basis points better."
Trades reported by the Municipal Securities Rulemaking Board showed sizeable gains yesterday. A dealer bought from a customer New York 5.25s of 2026 at 6.06%, down nine basis points from where they traded Tuesday. A dealer sold to a customer insured Philadelphia 7.125s of 2038 at 7.17%, 12 basis points lower than where they were sold Tuesday. A dealer sold to a customer insured California 5s of 2037 at 6.55%, down nine basis points from where they were sold Tuesday. Bonds from an interdealer trade of New Jersey 5s of 2022 yielded 5.66%, eight basis points lower than where they traded Tuesday.
"People sort of jumped right back in there today after what happened yesterday," a trader in Los Angeles said. "And really, we haven't had any kind of positive tone in the market for weeks prior to yesterday, so why not jump in? Who knows if this is going to be sustained, and with the holidays coming up so soon, it made sense for people to get off the sidelines and jump in there, and that's what's happened."
In other trades reported by the MSRB, a dealer sold to a customer Illinois Finance Authority 5.75s of 2037 at 8.00%, 14 basis points lower than where they traded Tuesday. Bonds from an interdealer trade of insured Golden State Tobacco Securitization Corp. 5s of 2035 yielded 6.25%, down nine basis points from where they were sold Tuesday. A dealer sold to a customer insured Puerto Rico 5.25s of 2027 at 6.75%, down six basis points from where they were sold Tuesday. A dealer sold to a customer Washington 5s of 2027 at 5.78%, six basis points lower than where they traded Tuesday.
"It was just a positive day out there in the marketplace," a trader in New Jersey said. "It was to be expected after the rally we saw at the end of the day yesterday after the Fed meeting, and then once today started, people just jumped in and started buying."
The Treasury market showed sizeable gains yesterday, continuing Tuesday's post-Fed decision rally, except on the short-end, which showed some losses. The yield on the benchmark 10-year Treasury note, which opened at 2.25%, was quoted near the end of the session at 2.19%. The yield on the two-year note was quoted near the end of the session at 0.73% after opening at 0.65%. The yield on the 30-year bond, which opened at 2.74%, was quoted near the end of the session at 2.66%.
In the statement accompanying Tuesday's Federal Open Market Committee decision, the Fed wrote that "weak economic conditions are likely to warrant exceptionally low levels of the federal funds rate for some time."
"The focus of the committee's policy going forward will be to support the functioning of financial markets and stimulate the economy through open market operations and other measures that sustain the size of the Federal Reserve's balance sheet at a high level," the statement said.
Additionally, the statement noted that the Fed "will continue to consider ways of using its balance sheet to further support credit markets and economic activity."
In the new-issue market yesterday, Morgan Stanley priced $103.5 million of hospital revenue refunding bonds for Oregon's Deschutes County Hospital Facility Authority. The bonds mature from 2013 through 2018, with term bonds in 2023, 2028, and 2038. Yields range from 5.00% with a 5.5% coupon in 2013 to 8.50% with an 8.25% coupon in 2038. The bonds, which are callable at par in 2019, are rated A3 by Moody's Investors Service.
The Alaska Housing Finance Corp. competitively sold $45 million of collateralized notes to Citi, with a net interest cost of 1.11%. The notes mature in December 2009, yielding 1.11% with a 1.1% coupon. The credit is rated MIG-1 by Moody's, SP-1-plus by Standard & Poor's, and F1-plus by Fitch Ratings.
JPMorgan priced $41.9 million of multi-family housing revenue bonds for the New York City Housing Development Corp. in two series. Bonds from the $10.5 million series L mature from 2009 through 2018, with a term bond in 2028. Yields range from 2.25% in 2009 to 6.50% in 2028, all priced at par. Bonds from the $31.3 million series M mature from 2010 through 2018, with term bonds in 2023, 2028, 2033, and 2038. Yields range from 3.15% in 2010 to 6.875% in 2038, all priced at par. All bonds are callable at par in 2018, and are rated Aa2 by Moody's and AA by Standard & Poor's.
Indiana's North Central Campus School Building Corp. competitively sold $30 million of first mortgage bonds to Hutchinson, Shockey, Erley & Co., with a NIC of 5.27%. The bonds mature from 2009 through 2028. None of the bonds were formally re-offered. The bonds, which are callable at par in 2018, are rated AA-plus by Standard & Poor's.
The economic calendar was light yesterday. However, some economic data will be released today: initial jobless claims for the week ended Dec. 13, in addition to the November composite index of leading economic indicators. Economists polled by Thomson Reuters are predicting 560,000 initial jobless claims, and a 0.5% decline in LEI.
