The municipal market was firmer by three to seven basis points yesterday as increased retail demand in the market continued.
"It's been quite a busy day. The market is up a ton," a trader in New York said. "There's definitely a lot of retail activity, and the secondary market has been quite active the entire day."
In the new issue market yesterday, Morgan Stanley continued pricing and repricing for retail investors $1.75 billion of tax-exempt and taxable general obligation bonds for California. This was the second day of retail pricing ahead of today's institutional pricing, and followed $824 million - or 47.1% - being sold to retail Tuesday.
The $1.7 billion tax-exempt component matures in 2009, and from 2010 through 2028, with a term bond in 2038. Bonds maturing in 2021, 2022, and from 2024 through 2027 were not offered during the retail order period, and bonds maturing in 2009 will be subject to a sealed bid. Yesterday, the 2038 term bond, which Tuesday yielded 5.14% with a 5.1% coupon, was re-priced to yield 5.05% at par, reflecting increased demand.
"It looks like retail is in, in a huge way," a trader in Los Angeles said. "The word is that the deal is in very good shape, and it's going to be another good deal."
Also, Bear, Stearns & Co. priced for retail investors $2 billion of taxable general obligation bonds for Connecticut. This is the third day of a week-long retail order period, which precedes institutional pricing next week. A $1.6 billion series of current interest bonds matures from 2014 through 2028, with a term bond in 2032. Yields range from 4.20% in 2014 to 5.20% in 2025, all priced at par.
The remaining bonds are not being offered during the retail order period. Additionally, a $400 million series of capital appreciation bonds matures from 2014 through 2025. Only bonds maturing in 2014 and 2018 were offered during the retail order period. The credit is rated Aa3 by Moody's Investors Service and AA by both Standard & Poor's and Fitch Ratings.
Trades reported by the Municipal Securities Rulemaking Board yesterday showed gains. Bonds from an interdealer trade of New York Metropolitan Transportation Authority 5.125s of 2029 yielded 4.80%, down six basis points from where they traded Tuesday. Bonds from an interdealer trade of New York City Housing Development Corp. 4.95s of 33 yielded 5.00%, three basis points lower than where they were sold Tuesday. Bonds from an interdealer trade of insured California's San Bernardino Unified School District 5s of 2033 yielded 4.23%, down seven basis points from where they were sold Tuesday. A dealer sold to a customer insured Los Angeles Department of Water and Power 5s of 2028 at 4.48%, four basis points lower than where they traded Tuesday.
The Treasury market showed some gains yesterday. The yield on the benchmark 10-year Treasury note closed at 3.47%, after opening at 3.56%. The yield on the two-year note was quoted near the end of the session at 1.76%, after opening at 1.87%. The yield on the 30-year bond, which opened at 4.38%, finished at 4.31%.
In economic data released yesterday, merchant wholesalers posted a 1.1% increase in inventories in February, while sales slipped 0.8% in the month. Inventories of merchant wholesalers rose to $421.9 billion, following an upwardly revised 1.3% increase to $417.1 billion in January. Meanwhile, sales by merchant wholesalers fell to about $377.4 billion, following January's revised 2.3% increase to $380.2 billion. Economists polled by IFR Markets predicted a 0.5% increase in wholesale inventories, and 0.2% growth in wholesale sales.
In other new-issue market activity, Merrill Lynch & Co. priced $309 million of certificates of participation for New Jersey. The debt matures from 2010 through 2023, with yields ranging from 2.98% with a 4% coupon in 2010 to 4.83% with a 5% coupon in 2023. The debt, which is callable at par in 2018, is rated A1 by Moody's, AA-minus by Standard & Poor's, and A-plus by Fitch.
UBS Securities LLC priced $145.1 million of revenue bonds for the New Jersey Health Facilities Financing Authority in three tranches. The deal is converting auction-rate securities into fixed-rate debt. Each tranche is worth $48.5 million, and matures in 2038, yielding 5% priced at par. The bonds, which are callable at par in 2018, are insured by Assured Guaranty Corp. The underlying credit is rated A-minus by Standard & Poor's.
Wachovia Bank, NA, priced $65 million of GO school bonds for Medford School District No. 549C in Jackson County, Ore. The bonds mature in 2010, and from 2012 through 2028, with term bonds in 2030 and 2033. Yields range from 2.30% with a 3.25% coupon in 2010 to 4.65% with a 5% coupon in 2033. The bonds, which are callable at par in 2018, are backed by the Oregon School Bond guaranty program, and are rated Aa2 by Moody's and AA by Standard & Poor's. The underlying credit is rated A1 by Moody's and A-plus by Standard & Poor's.
Also, leading a light competitive slate, Cedar Rapids, Iowa, competitively sold $22.1 million of GO bonds to Hutchinson, Shockey, Erley & Co., with a TIC of 4.00%. The bonds mature from 2009 through 2027, with yields ranging from 2.30% with a 3.25% coupon in 2010 to 4.57% with a 4.5% coupon in 2027. Bonds maturing in 2009, 2013, 2014, 2016, and 2017 were not formally re-offered. The bonds, which are callable at par in 2016, are rated Aaa by Moody's.
