The municipal market was weaker yesterday, following Treasuries. Traders said tax-exempt yields were higher by four to six basis points overall.
"Munis were pretty much just picking up where they left off yesterday," a trader in Los Angeles said. "It was going to be difficult to sustain the rally for as long as we did, and now that things started cheapening up the beginning of this week, and even if you go back to very late last week, take that and put it together with Treasuries going down, and you've got some momentum for us to give back some of those gains. It still feels a little better than yesterday, but we're down a good five or six basis points, maybe a little more in spots."
The Treasury market showed losses yesterday. The yield on the benchmark 10-year note, which opened at 2.38%, was quoted near the end of the session at 2.54%. The yield on the two-year note was quoted near the end of the session at 0.75% after opening 0.70%. The yield on the 30-year bond, which opened at 2.98%, was quoted near the end of the session at 3.15%.
George Friedlander, managing director and fixed-income strategist at Citi, wrote in a weekly report that "from this point forward, the muni market is likely to be in more of a 'tug of war' than over the past five weeks."
"The good news is that the slope of the muni yield curve remains extremely steep, and that short-term yields are painfully low," he wrote. "This will continue to push investors to lengthen maturity. Also, bond fund flows appear to have turned around after a severely negative period during the fourth quarter."
Friedlander also wrote that the "bad news is that the muni market remains highly dependent on the individual investor, with institutional participation still extremely limited."
"And of course, much of the relative 'cheapness' of high-grade munis is gone, with 10-year yields around 3%," he added. "Investors will continue to have a strong incentive to lengthen maturity, in order to pick up additional income, but we wonder how the market would handle a large weekly calendar with very limited dealer balance sheet available, and institutional demand limited mostly to bond funds."
In the new-issue market yesterday, Goldman, Sachs & Co. priced $414.3 million of second-lien special tax obligation refunding bonds for Connecticut. The bonds mature from 2010 through 2022, with yields ranging from 1.52% with a 3% coupon in 2011 to 4.35% with a 4.25% coupon in 2022. Bonds maturing in 2010 will be decided via sealed bid. The bonds, which are callable at par in 2019, are rated A1 by Moody's Investors Service, AA by Standard & Poor's, and AA-minus by Fitch Ratings.
Banc of America Securities LLC priced $175 million of school facilities construction bonds for the New Jersey Economic Development Authority. The bonds mature from 2010 through 2028, with term bonds in 2034. Yields range from 2.30% with a 4% coupon in 2010 to 5.82% with a 5.5% coupon in 2034. The bonds are callable at par in 2018. Two term maturities in 2034 are insured by Assured Guaranty Corp. All other bonds are uninsured. The underlying credit is rated A1 by Moody's, AA-minus by Standard & Poor's, and A-plus by Fitch.
Banc of America also priced $150 million of GO bonds for the San Francisco Unified School District. The bonds mature from 2009 through 2024, with yields ranging from 1.62% with a 3% coupon in 2011 to 4.54% with a 4.375% coupon in 2024. Bonds maturing in 2009 and 2010 will be decided via sealed bid. The bonds, which are callable at par in 2019, are rated Aa3 by Moody's and AA-minus by Standard & Poor's.
The Miami-Dade County School District competitively sold $132 million of revenue anticipation notes to various bidders. Citi won the largest chunk, worth $107 million, with a net interest cost of 0.60%. Barclays Capital won the remaining $25 million piece with a NIC of 0.55%. The Rans, which mature in January 2010, have a 1.5% coupon and were not formally re-offered. The credit is rated MIG-1 by Moody's.
Robertson County, Tenn., competitively sold $40.1 million of general obligation school and public improvement bonds to Hutchinson, Shockey, Erley & Co. The bonds mature from 2010 through 2026, with term bonds in 2028 and 2029. Coupons range from 5% in 2010 to 4.75% in 2029. None of the bonds were formally re-offered. The bonds, which are callable at par in 2019, are insured by Financial Security Assurance Inc.
Raymond James & Co. priced $25.9 million of marine terminal revenue bonds for the South Jersey Port Corp. in several series. Bonds from the $19.8 million Series O-1 mature from 2020 through 2026, with terms in 2028, 2034, and 2039. Yields range from 4.01% with a 3.75% coupon in 2020 to 5.63% with a 5.75% coupon in 2039. Bonds from the $910,000 Series O-2 mature from 2020 through 2026, with term bonds in 2034 and 2039. Yields range from 4.01% with a 3.75% coupon in 2020 to 5.63% with a 5.75% coupon in 2039. And bonds from the $5.2 million Series O-3, which are subject to the alternative minimum tax, mature from 2010 through 2019, with yields ranging from 3.13% with a 3% coupon in 2010 to 5.56% with a 5.375% coupon in 2019. All bonds are insured by Assured Guaranty. Bonds from series O-3 are not callable. All other bonds are callable at par in 2019. The underlying credit is rated A1 by Moody's and A by Standard & Poor's.
The economic calendar was light yesterday.
