The municipal market was again firmer yesterday, as a surge of investor demand continued, even as a $2.3 billion North Texas Tollway Authority sale was priced in the primary market.
Traders said tax-exempt yields were lower by six to eight basis points.
"Overall, it's very busy out there. People have literally been scared into the market," a trader in New York said. "Yields have dropped quite a lot since the end of last week, but this could be a new kind of trend for us. We could start going back and forth now, between rallying and selling off."
"There is chatter about another hedge fund or two dumping paper into the market, but I haven't seen it, certainly not to the extent we saw it late last week and into early this week," the trader said. "But that could come, so I think a lot of people are hesitant to carry bonds. A lot of people are trading bonds on an agency basis, where they have an order going from one side to the other. They're just taking precautions."
In the new-issue market yesterday, Bear, Stearns & Co. tentatively priced $2.3 billion of revenue refunding bonds for the NTTA in four series. A final pricing wire was not released by press time.
Bonds from the largest series, $1.7 billion of first-tier current interest bonds, mature from 2009 through 2025, with term bonds in 2028, 2033, and 2040. Yields range from 3.25% with a 4.5% coupon in 2010 to 6.00% with a 5.75% coupon in 2048. Bonds maturing in 2028 are insured by MBIA Insurance Corp.
Bonds maturing in 2009 will be decided via sealed bid. Bonds from the next largest series, $300 million of first-tier capital appreciation bonds, mature from 2028 through 2038. These bonds are insured by Assured Guaranty Corp.
Bonds from the $244.6 million Series B mature from 2009 through 2028, with term bonds in 2033 and 2040. Yields range from 3.25% with a 4.5% coupon in 2010 to 5.90% with a 5.75% coupon in 2040. Bonds maturing in 2009 will be decided via sealed bid.
Bonds from the smallest series, $19.3 million of taxable current interest bonds, mature in 2009 and 2010. Bonds from the $1.7 billion series and the $244.6 million series are callable at par in 2018. All other bonds are not callable.
The underlying credit is rated A2 by Moody's Investors Service and A-minus by Standard & Poor's.
This burst of supply follows a $1.8 billion California offering Tuesday, and a Citi-priced $1.6 billion Puerto Rico Aqueduct and Sewer Authority new-money revenue and refunding offering which priced Wednesday afternoon, after being originally set to price yesterday.
The Puerto Rico bonds mature from 2012 through 2016, in 2025, 2028, 2038, 2044, and 2047, with yields ranging from 4.10% with a 5% coupon in 2012 to 5.27% with a 5.125% coupon in 2047. The bonds are callable at par in 2018. Assured Guaranty insured $400 million of the deal, covering bonds maturing in 2015, 2016, 2025, 2028, and 2047. The underlying credit is rated Baa3 by Moody's and BBB-minus by Standard & Poor's and Fitch Ratings.
Jorge Irizarry, president of the Government Development Bank for Puerto Rico, said the $1.3 billion sale received $4.3 billion of orders, and of the $1.3 billion sold, $100 million went to retail investors. He said that the deal brought in 40 institutional investors, "which is more than we normally get, and we had a lot of new names in there that now hold Puerto Rico bonds."
Irizarry said the deal was moved up a day to take advantage of rapidly improving market conditions.
"What we saw was that earlier this week the market started to improve and muni rates started to rally significantly. They had just been beaten down and started to rally and we saw levels that worked in our finance plan," Irizarry said. "And then when we went to the market, we actually got much better rates than we had anticipated. I think the market was looking for a level - there hadn't been much activity."
Also, yesterday billionaire investor Wilbur Ross of WL Ross & Co. confirmed that earlier this week he purchased $1 billion of municipal bonds to take advantage of the extraordinarily high relative value of tax-exempts to Treasuries.
"I believe that the confusion with the monoline insurers, plus general nervousness in the market, has put muni yields at ridiculous levels," Ross said.
Ross' purchase follows media reports of PIMCO fund manager Bill Gross earlier this week purchasing $1.5 billion of tax-exempt securities for the same reason.
The Treasury market showed gains yesterday. The yield on the benchmark 10-year Treasury note, which opened at 3.69%, finished at 3.59%. The yield on the two-year note, which opened at 1.64%, was quoted near the end of the session at 1.51%.
In economic data released yesterday, initial jobless claims for the week ended March 1 came in at 351,000, after a revised 375,000 the previous week. Economists polled by IFR Markets had predicted 360,000 initial jobless claims.
Continuing jobless claims came in at 2.831 million the week ended Feb. 23, after a revised 2.802 million the previous week. Economists polled by IFR Markets had predicted 2.800 million continuing jobless claims.
In other new-issue market activity, Boston competitively sold $126.2 million of general obligation bonds to Lehman Brothers, with a true interest cost of 4.21%. The bonds mature from 2009 through 2028, with yields ranging from 2.40% in 2010 to 4.34% in 2022, all with 5% coupons. Bonds maturing in 2009, 2014, from 2016 through 2019, and from 2023 through 2028 were not formally re-offered. The bonds, which are callable at par in 2018, are rated Aa1 by Moody's, AA-plus by Standard & Poor's, and AA by Fitch.
