The municipal market was again significantly weaker yesterday, as the disconnect between the municipal and Treasury markets continued.
Traders said tax-exempt yields were higher by nine to 11 basis points.
"We're way weaker again," a trader in New York said. "The Treasury market is rallying, but we're no longer following the Treasury market, so munis are kind of going wherever they want to go, based on new issues, and based on buying and selling. It's kind of a change of the market here, which is pretty interesting. Things are certainly a lot cheaper. It's crazy out there. It's a new beginning, or a new something, at least. I just don't know what yet."
"Municipal bonds completely ignored the Treasury market," a trader in New Jersey said. "The same thing has been happening since the start of February and buyers are scattered out of fear with what is happening on the short end."
The Treasury market showed gains yesterday. The yield on the benchmark 10-year Treasury note, which opened at 3.85%, finished at 3.68%. The yield on the two-year note was quoted near the end of the session at 1.85% after opening at 2.00%.
The Bond Buyer 40 Municipal Bond Index hit 103-14 yesterday, which is the lowest price for the index since May 21, 2002, when it was 103-09. The average yield to par call of 5.76% was the highest since Dec. 18, 2001, when it was 5.80%. And the average yield to maturity of 5.33% was the highest since June 10, 2002, when it was 5.34%.
In economic data released yesterday, initial jobless claims for the week ended Feb. 23 came in at 373,000, after a revised 354,000 the previous week. Additionally, continuing jobless claims for the week ended Feb. 16 came in at 2.807 million, after a revised 2.786 million the prior week. Economists polled by IFR Markets had predicted 350,000 initial jobless claims and 2.800 million continuing jobless claims.
Also, the preliminary fourth-quarter gross domestic product came in at 0.6% after a 0.6% reading in the advance fourth-quarter reading. Economists polled by IFR had predicted a 0.7% reading.
Today, some significant economic data will be released. January personal income, January personal consumption, the January core personal consumption expenditures deflator, the Chicago purchasing managers index for February, and the final February University of Michigan consumer sentiment will be released.
Economists polled by IFR Markets are predicting 0.2% growth in personal income, a 0.2% uptick in personal consumption, 2.2% rise to the core PCE deflator, a 50.0 Chicago PMI reading, and a 70.0 level for the Michigan sentiment index.
In the new-issue market yesterday, the Florida Department of Transportation competitively sold $155 million of right-of-way acquisition and bridge construction bonds to Lehman Brothers with a true interest cost of 5.20%. The bonds mature from 2008 through 2028, with a term bond in 2037, with yields ranging from 2.35% with a 3% coupon in 2008 to 5.35% with a 5.25% coupon. The bonds will be callable at 101 in 2017, declining to par in 2018. The bonds are rated Aa1 by Moody's Investors Service, AAA by Standard & Poor's, and AA-plus by Fitch Ratings.
Lehman also priced $186.8 million of taxable bonds for George Washington University in two series. One $93.4 million series matures in 2032, and the other $93.4 million series matures in 2012, 2013, 2017, 2019, and 2032. The bonds are insured by MBIA Insurance Corp. The underlying credit is rated A1 by Moody's and A by Standard & Poor's.
The Rialto, Calif., Redevelopment Agency competitively sold $46.8 million of tax allocation bonds to Citi, with a TIC of 6.02%. The bonds mature from 2008 through 2024, with term bonds in 2028, 2033, and 2037. Yields range from 3.75% with a 4% coupon in 2008 to 5.75% priced at par in 2028. Bonds maturing in 2033 and 2037 were not formally re-offered. The bonds, which are callable at par in 2018, are rated A-minus by Standard & Poor's and BBB-plus by Fitch.
Banc of America Securities LLC priced $49.6 million of taxable electric utility system revenue bonds for Austin. The bonds, which are insured by Assured Guaranty Corp., mature from 2009 through 2013, with term bonds in 2017, 2019, and 2032. The underlying credit is rated A1 by Moody's, A-plus by Standard & Poor's, and AA-minus by Fitch.
The Gwinnett County, Ga., Development Authority competitively sold $33 million of taxable revenue bonds to Morgan Keegan & Co. with a TIC of 6.25%. The bonds mature from 2014 through 2019, and from 2022 through 2025, with term bonds in 2028 and 2038. Yields range from 4.74% with a 6.5% coupon in 2014 to 6.46% with a 6.6% coupon in 2038. The bonds, which are callable at par in 2018, are rated triple-A by all three major rating agencies.
