Munis Unchanged; NTTA Prices $1.4 Billion

The municipal market was mostly unchanged yesterday in light activity, while the North Texas Tollway Authority priced more than $1.4 billion of bonds, including $825 million of Build America Bonds."Right now, it just seems we're in the summer doldrums," a trader in New Jersey said. "It's a little slow, but some new paper might come into the market. Right now, though, it's just like a typical summer day. Anything we can get we'll take, but good ones seem to be out there, and it's just the matter of if you get the right level to see if they're going to trade. Unfortunately, I know it's tough to spin not much happening, but it seems to be that way."

"There's just not a lot going on today," a trader in Los Angeles said. "It's pretty quiet, not a lot of movement, not a lot trading in the secondary. Just a quiet summer Monday."

The Treasury market showed losses yesterday. The yield on the benchmark 10-year note, which opened at 3.48%, finished at 3.63%. The yield on the two-year note finished at 1.19% after opening at 1.11%. The yield on the 30-year bond, which opened at 4.30%, finished at 4.40%.

As of Friday's close, the triple-A muni scale in 10 years was at 85.2% of comparable Treasuries, according to Municipal Market Data. Additionally, 30-year munis were 107.6% of comparable Treasuries. Also, as of Friday's close, 30-year tax-exempt triple-A general obligation bonds were at 112.0% of the comparable London Interbank Offered Rate.

BABs will make a prominent appearance in this week's primary market as three of the largest deals will offer a sizable amount of the taxable securities amid an estimated $6.33 billion in total competitive and negotiated volume, according to Ipreo LLC and The Bond Buyer.

The NTTA made its way to market yesterday with a two-pronged sale also featuring BABs. Goldman, Sachs & Co. priced $825 million of Series 2009 first-tier BABs maturing in 2049, while Morgan Stanley priced $421 million of first-tier current interest bonds. The bonds mature from 2011 through 2013, with term bonds in 2024, 2028, and 2039. Yields range from 2.65% with a 3% coupon in 2011 to 6.34% with a 6.25% coupon in 2039. The bonds, which are callable at par in 2019, are rated A2 by Moody's Investors Service and A-minus by Standard & Poor's.

Morgan Stanley also priced $178.3 million of NTTA revenue bonds yesterday. These bonds mature from 2019 through 2023, with a term bond in 2025. Yields range from 5.05% with a 5% coupon in 2019 to 6.00% priced at par in 2025. The bonds are callable at par in 2019.

Today, a two-pronged toll road revenue sale from the Metropolitan Washington Airports Authority totaling about $853 million will headline new-issue activity, to finance projects at Dulles International Airport, including the Dulles Metrorail and other capital improvements.

The larger portion of the deal will be priced by Citi and consists of $494 million of tax-exempt securities that are subdivided into three smaller series: $176 million of current interest senior-lien bonds maturing in 2039 and 2044; $123 million of second-senior lien capital appreciation bonds maturing serially from 2016 to 2040; and $195 million of second senior-lien convertible CABs maturing in 2041.

The other portion of the deal consists of $359.5 million of senior-lien direct-pay BABs being priced tomorrow by Morgan Stanley. The senior-lien toll road bonds are rated A2 by Moody's and A by Standard & Poor's, while the second senior-lien bonds are rated Baa1 by Moody's and BBB-plus by Standard & Poor's.

In a weekly report, Morgan Stanley Smith Barney muni strategist George Friedlander wrote: "In the fixed-income markets generally, there has been a dramatic tightening of relative-value spreads of all kinds in recent months, and that pattern appears to have even picked up steam in July, as financial conditions improved and high-grade corporate bond spreads tightened by as much as 50 basis points."

"In municipals, this pattern has manifested itself two ways: through tightening of credit spreads even for some weaker issuers and sectors, and through a continued drop in yields on shorter intermediates," he wrote.

In economic data released yesterday, spending on construction projects rose 0.3% to a seasonally adjusted annual rate of $966.7 billion in June as private construction decreased 0.1%, and public construction grew 1.0%. The overall increase, which compares to the 0.5% decrease projected by Thomson Reuters, followed a revised May level of $963.2 billion, a 0.8% decrease from April.

According to the Institute for Supply Management's monthly report on business, the ISM index gained to 48.9 in July from 44.8 in June. Economists polled by Thomson Reuters predicted the index would rise to 46.2.

UBS economist Jim O'Sullivan said the construction spending data "does show some effects from the fiscal stimulus package."

"So I think you're starting to see a boost to state and local government construction from the stimulus package," he said. "That stimulus package is of course one reason the economy seems to be turning right now."

O'Sullivan also said he is expecting a loss of 250,000 jobs for this Friday's upcoming July non-farm payrolls data. Economists polled by Thomson Reuters are calling for more pronounced losses, a drop of 320,000 payrolls. O'Sullivan said his forecast would "continue the relative improvement in recent months."

Elsewhere in the new-issue market yesterday, Citi priced $235 million of GOs for Maryland. The bonds mature from 2012 through 2023, with yields ranging from 0.94% with a 2% coupon in 2012 to 3.56% with a 5% coupon in 2023. The bonds, which are callable at par in 2017, are rated triple-A by all three major rating agencies.

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