Munis 'Pretty Flat' Across the Curve

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The municipal market was largely unchanged yesterday as the trading week got underway.

"There isn't a whole lot going on at this point. We're pretty flat," a trader in New York said. "I'm not really seeing much movement at all, and I don't really have a good sense on what kind of tone we've got out there. We're just flat."

Trades reported by the Municipal Securities Rulemaking Board yesterday showed little movement. Bonds from an interdealer trade of Berks County, Pa. 5s of 2022 yielded 3.70%, even with where they were sold Friday. Bonds from an interdealer trade of Dormitory Authority of the State of New York 5s of 2038 yielded 5.13%, one basis point lower than where they traded Friday. A dealer sold to a customer Kentucky Economic Development Finance Authority 5.625s of 2027 at 5.59%, up one basis point from where they were sold Friday. A dealer bought from a customer Wisconsin 5s of 2022 at 4.08%, even with where they were sold Friday. A dealer sold to a customer taxable Illinois 5.1s of 2033 at 6.20%, even with where they traded Friday. A dealer sold to a customer Texas 5s of 2024 at 4.19%, even with where they were sold Friday. A dealer sold to a customer Lubbock, Texas 5s of 2024 at 4.32%, even with where they traded Friday.

"Munis were pretty unchanged today," a trader in Los Angeles said. "There wasn't too much to speak of. We kind of just picked up where we left off Friday. Not a lot of movement, just pretty flat straight across the curve."

The Treasury market was mixed yesterday. The yield on the benchmark 10-year Treasury note, which opened at 2.99%, was quoted near the end of the session at 3.01%. The yield on the two-year note was quoted near the end of the session at 1.04% after opening at 0.99%. The yield on the 30-year bond, which opened at 3.70%, was quoted near the end of the session at 3.68%.

Volume is expected to accelerate slightly this week, with $4 billion of negotiated and competitive deals on the calendar, compared with the revised $3.16 billion that ushered in the first week of February, according to Thomson Reuters.

Two of the week's largest deals will be centered in Texas, where offerings being priced by JPMorgan will vie for investors' attention.

The larger of the two deals is a $293.9 million Dallas revenue refunding and improvement bond issue for the city's civic center convention complex. The deal, which will be priced today, is expected to be insured by Assured Guaranty Corp. and is structured to mature serially from 2011 to 2029 with term bonds in 2034 and 2038.

Texas A&M University will bring $250 million of revenue debt to market on Thursday. The deal has ratings of Aa1 from Moody's Investors Service and AA-plus from Fitch Ratings and is expected to be structured with serial bonds maturing from 2010 to 2029.

In the new-issue market yesterday, Morgan Stanley priced $235.6 million of general obligation bonds for New Jersey's Rutgers State University. The bonds mature from 2010 through 2031, with a term bond in 2039. Yields range from 0.93% with a 2% coupon in 2010 to 5.00% priced at par in 2039. The bonds, which are callable at par in 2019, are rated Aa3 by Moody's and AA by Standard & Poor's.

Banc of America Securities LLC priced for retail investors $232.4 million of certificates of participation for Oregon in two series. Bonds from the $216.9 million Series A mature from 2010 through 2028, with term bonds in 2033 and 2039. Yields range from 1.68% with a 3% coupon in 2011 to 5.30% priced at par in 2039. Bonds maturing in 2010 will be decided via sealed bid. The bonds are callable at par in 2019. The deal also contains a $15.5 million taxable component. The bonds mature from 2010 through 2023 and were not offered during the retail order period. The credit is rated Aa3 by Moody's and AA-minus by Standard & Poor's and Fitch.

In a weekly report, George Friedlander, managing director and fixed-income strategist at Citi, wrote that "yields on high-grade munis continued to decline" last week "all along the yield curve, with the greatest drop occurring on the long end, which saw a 20 basis point-plus shift."

"In our view, several forces are at work," he wrote. "First, bond fund flows have rebounded quite strongly, picking up steam as January progressed. Secondly, the collapse in short term yields of all kinds is forcing investors to look elsewhere. Third, the muni sector has become an asset class of choice for assets being redeployed. Fourth, after a strong start to the year, new-issue supply has remained moderate at best. Some investors had incorrectly perceived that the budgetary problems of state and local governments would generate additional supply. In our view, exactly the opposite is occurring."

The economic calendar was light yesterday, though a slate of economic data will be released this week. Today, December wholesale inventories and December wholesale sales will be released, followed Thursday by initial jobless claims for the week ended Feb. 7 and continuing jobless claims for the week ended Jan. 31, along with January retail sales and December business inventories. On Friday, the preliminary University of Michigan consumer sentiment index will be released.

Predictions by economists polled by Thomson Reuters include a 0.7% drop in wholesale inventories, a 3.5% drop in wholesale sales, 610,000 initial jobless claims, 4.800 million continuing jobless claims, an 0.8% dip in retail sales, a 0.5% drop in retail sales excluding autos, an 0.8% decline in business inventories, and a 61.0 Michigan sentiment reading.

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