The municipal market was considerably firmer yesterday after seeing uninterrupted weakness since mid-February, as buyers flocked to the market looking to take advantage of the high yield levels.
Traders said tax-exempt yields were lower by five to seven basis points on the day.
"A lot of buyers showed up. It seems like I'm getting calls from people who I didn't think munis existed in their sphere, and now all of a sudden they have orders for them," a trader in New York said. "I'm getting calls from all over the place looking for bonds. People who normally buy taxables are buying munis because of the spreads. It's strictly people who need yield."
Trades reported by the Municipal Securities Rulemaking Board yesterday showed gains. A dealer sold to a customer New York's Triborough Bridge and Tunnel Authority 5s of 2035 at 5.12%, down three basis points from where they were sold Monday. Bonds from an interdealer trade of insured Massachusetts 5s of 2037 yielded 5.17%, four basis points lower than where they traded Monday. Bonds from an interdealer trade of insured Houston 5s of 2031 yielded 5.12%, down three basis points from where they were sold Monday. Bonds from an interdealer trade of New York City Municipal Water Finance Authority 5s of 2039 yielded 5.13%, four basis points lower than where they traded Monday.
The Treasury market was flat to slightly weaker. The yield on the benchmark 10-year Treasury note, which opened at 3.55%, finished at 3.60%. The yield on the two-year note was quoted near the end of the session at 1.63% after opening at the same level.
In the new-issue market yesterday, Siebert, Brandford, Shank & Co. priced $1.75 billion of general obligation bonds for California. The bonds mature from 2009 through 2027, with term bonds in 2030, 2036, and 2038. Yields range from 2.85% with a 5% coupon in 2010 to 5.40% with a 5.25% coupon in 2038. Bonds maturing in 2009 were not formally re-offered. The bonds, which are callable at par in 2018, are rated A1 by Moody's Investors Service and A-plus by both Standard & Poor's and Fitch Ratings.
Bear, Stearns & Co. priced $816.6 million of electric system revenue bonds for Arizona's Salt River Project Agricultural Improvement and Power District. The bonds mature from 2016 through 2028, with term bonds in 2033 and 2038. Yields range from 3.84% in 2016 to 5.03% in 2038, all with 5% coupons. The bonds, which are callable at par in 2018, are rated Aa1 by Moody's and AA by Standard & Poor's.
Goldman, Sachs & Co. priced $499 million of second general highway and bridge trust fund bonds for the New York State Thruway Authority. The bonds mature from 2009 through 2028, with yields ranging from 2.79% with a 3% coupon in 2010 to 5.10% with a 5% coupon in 2028. Bonds maturing in 2009 were not formally re-offered. The bonds, which are callable at par in 2018, are rated AA by Standard & Poor's and AA-minus by Fitch.
The Nashville and Davidson CountyMetropolitan Government competitively sold $308 million of general obligation bonds to Merrill Lynch & Co., at a true interest cost of 4.76%. The bonds mature from 2011 through 2028, and none of the bonds were formally re-offered. The bonds, which are callable at par in 2018, are rated AA by both Standard & Poor's and Fitch.
Triple-A rated Delaware competitively sold $156.8 million of GOs to JPMorgan, at a TIC of 4.02%. The bonds mature from 2009 through 2025, and none of the bonds were formally re-offered. The bonds are callable at par in 2016.
The Stafford County, Va., Economic Development Authority competitively sold $44.1 million of lease revenue bonds to Wachovia Bank NA with a TIC of 4.73%. The bonds mature from 2009 through 2023, with a term bond in 2033. Yields range from 2.40% with a 4% coupon in 2009 to 4.97% with a 4.75% coupon in 2023. Bonds maturing in 2019 and 2033 were not formally re-offered. The bonds, which are callable at par in 2018, are insured by Assured Guaranty Corp. The underlying credit is rated A2 by Moody's and A-plus by both Standard & Poor's and Fitch.
Meanwhile, as issuers look for solutions to their auction-rate problems, at least one has found some success.
The Connecticut Housing Finance Authority, working with financial adviser Lamont Financial Services Corp., restructured its variable-rate demand obligations last week so that the liquidity facility is independent of the bond insurer attached to the deal. The authority reached an agreement with Depfa Bank PLC to amend the termination events for the liquidity facility. The change made the trigger contingent on the rating of the issuer, rather than the insurer, falling below investment grade. Ambac Assurance Corp. insures more than $900 million of the CHFA's variable-rate demand bonds. Fitch last month dropped Ambac's rating to AA from AAA.
According to Lamont managing director Renee Boicourt, the auction-rate resets from last week showed that changes to the Depfa Ambac-related triggers were a success. In an e-mail, Boicourt said bonds with trigger events tied to the issuer rating were spread one basis point below the SIFMA swap index, whereas bonds with unmodified triggers were spread 104 basis points above the SIFMA index. Furthermore, bonds subject to the alternative minimum tax with trigger events tied to the issuer rating were spread 20 basis points above the SIFMA index, whereas AMT bonds with unmodified triggers were spread 129 basis points above the SIFMA index.
Boicourt also said the Federal Home Loan Bank of Boston is expected to make similar changes to its liquidity facility on approximately $458 million of VRDBs, removing Ambac from any termination provisions that would hamper liquidity. Moody's and Standard & Poor's have affirmed the ratings on the basis of amended agreement.
The economic calendar was light yesterday.
