Weakness set into the tax-exempt market yesterday, as this week's hefty primary market supply began arriving in earnest, pushing yields higher.
In the new-issue market yesterday, Wake County, N.C., competitively sold a combined $502.3 million of general obligation bonds, the week's largest expected competitive offering. Bonds from the larger $435 million series were sold to Merrill Lynch & Co., at a true interest cost of 3.81%. The bonds mature from 2010 through 2026, with yields ranging from 2.85% with a 5% coupon in 2016 to 4.50% priced at par in 2025. Bonds maturing from 2010 through 2015, in 2019, from 2021 through 2023, and in 2026 were not formally re-offered. The bonds are callable at par in 2019.
Bonds from the smaller $67.4 million series were sold to BB&T Capital Markets, at a TIC of 2.16%. The bonds mature from 2010 through 2015, yielding 1.57% in 2012 and 1.98% in 2013, both with 5% coupons. None of the other bonds were formally re-offered. Bonds from this series are not callable. The deal has natural triple-A ratings from all three major credit agencies.
Morgan Stanley priced $308.9 million of GOs for Connecticut in three series. Bonds from the $155 million series mature from 2010 through 2020, with term bonds in 2023. Yields range from 1.31% with a 2% coupon in 2011 to 4.23% with a 4% coupon in 2023. Bonds maturing in 2010 will be decided via sealed bid. The bonds are callable at par in 2019.
Bonds from the $73.9 million refunding series mature from 2009 through 2018, with yields ranging from 1.31% with a 2% coupon in 2011 to 3.53% with a 5% coupon in 2018. Bonds maturing in 2009 and 2010 will be decided via sealed bid. The deal also contains an $80 million taxable component. The credit is rated Aa3 by Moody's Investors Service and AA by both Standard & Poor's and Fitch Ratings.
The pricing followed yesterday's retail order period, during which Connecticut sold $140 million combined of the two tax-exempt portions. The longest maturity sold yesterday was 2023, which yielded 4.20% with a 4% coupon.
Meanwhile, traders said tax-exempt yields in the secondary market were higher by three to five basis points overall.
"We were holding in there flat for a while, but I think between what's out there today, what's expected the rest of the week, and a bit of the concern about the Fed possibly announcing they'll buy Treasuries when the statement comes out tomorrow, we're definitely down a bit," a trader in New York said.
The Federal Open Market Committee began a scheduled two-day scheduled policy-setting meeting yesterday. The meeting concludes today with its monetary policy statement due early this afternoon.
Elsewhere in the new-issue market, Morgan Stanley priced for retail investors $325 million of bonds for Utah's Intermountain Power Agency ahead of institutional pricing today. No further details were available by press time. The credit is rated AA-minus by Fitch.
A trader in Los Angeles, however, said retail pricing levels for the IPA deal were "just okay."
"They've got institutional tomorrow, and it's going to be priced at whatever levels it takes to get it done," the trader said. "The levels were just okay, but no one ever really puts their best foot forward until institutional. That's when rubber meets road."
Barclays Capital priced $219 million of future tax-secured senior bonds for the New York City Transitional Finance Authority in two series. Bonds from the $199.5 million Series A mature from 2010 through 2019, with yields ranging from 1.15% with a 3% coupon in 2010 to 4.15% with a 5.25% coupon in 2019. The bonds are callable at par in 2019. Bonds from the $19.5 million Series B mature from 2009 through 2018, with yields ranging from 1.15% with a 2.5% coupon in 2010 to 3.97% with a 4% coupon in 2018. Bonds maturing in 2009 will be decided via sealed bid. The bonds are not callable. The credit is rated Aa1 by Moody's, AAA by Standard & Poor's, and AA-plus by Fitch.
The Treasury market showed losses yesterday. The yield on the benchmark 10-year note, which opened at 2.95%, was quoted near the end of the session at 3.00%. The yield on the two-year note was quoted near the end of the session at 1.03% after opening at 1.00%. The yield on the 30-year bond, which opened at 3.75%, was quoted near the end of the session at 3.82%.
As of Monday's close, the triple-A scale in 10 years was at 113.6% of comparable Treasuries, according to Municipal Market Data. Additionally, 30-year munis were 130.0% of comparable Treasuries. Also, as of the close Monday, 30-year tax-exempt triple-A rated GOs were at 144.1% of the comparable London Interbank Offered Rate.
In economic data released yesterday, housing starts came in at 583,000 in February after a revised 477,000 the previous month. Economists polled by Thomson Reuters had predicted 450,000 housing starts.
Building permits came in at 547,000 in February, after 531,000 in January. Economists polled by Thomson Reuters had predicted 500,000 building permits.
The producer price index climbed 0.1% in February, after a 0.8% rise in January. Economists polled by Thomson had predicted a 0.4% rise.
The PPI core increased 0.2% in February after a 0.4% uptick the previous month. Economists polled by Thomson Reuters had predicted a 0.1% climb.
