The municipal market remained weaker in light trading yesterday, while the New Jersey Transportation Trust Fund Authority postponed institutional pricing on its deal one day after pricing it for retail.
The tone that has characterized the market since the market stopped its April rally last Thursday continued yesterday, traders said.
"Prices were weaker by a couple of basis points," a trader in Chicago said. "The market had a very strong tone to it the last couple of weeks, and I think it's natural to take a little bit of a break here."
After pricing for retail Monday, the institutional pricing of $350 million of bonds for the New Jersey authority was postponed and moved to the day-to-day calendar. Merrill Lynch & Co. is the senior manager on the deal.
"The delay at this time was determined to be in the best interests of the issuer and investors," a spokesman for the state treasurer's office said in an e-mail.
Also in the new-issue market yesterday, JPMorgan priced for retail $127.6 million of revenue refunding bonds, some of which are taxable, for the Northern California Transmission Agency for the California-Oregon Transmission Project. Bonds in the $65.7 million tax-exempt Series A mature from 2016 through 2024, with yields ranging from 3.08% with a 3.50% coupon in 2016 to 4.50% with a 4.375% coupon in 2024. The bonds, which are callable at par in 2019, are rated Aa3 by Moody's Investors Service, A-plus by Standard & Poor's and A-plus by Fitch Ratings.
Goldman, Sachs & Co. also priced and repriced $100 million of revenue bonds for the Orlando Utilities Commission. The bonds, which mature in 2039, yield 5.05% with a coupon of 5.25%. Originally, the offering had been priced in two $50 million tranches to yield 5.081% with a 5% coupon and to yield 5% with a 5.25% coupon. The bonds, which are callable at par in 2019, are rated Aa1 by Moody's and AA by Standard & Poor's and Fitch.
Citi priced $202 million of system revenue bonds for the Arizona Board of Regents on behalf of the University of Arizona. Details on the pricing were not available as of press time.
Nassau County, N.Y., competitively sold $99 million of general improvement bonds to Citi at a true interest cost of 4.101876%. The bonds mature 2011 through 2029, with yields ranging from 1.90% with a 2.50% coupon in 2013 to 4.55% with a 4.5% coupon in 2028. Bonds maturing 2011, 2012, and 2029 were not reoffered. The bonds, which are callable at par in 2019, are insured by Assured Guaranty Corp., except for those maturing in 2011 and 2012.
Nassau County also sold $15 million of sewer and storm water resources district bonds to Citi at a true interest cost of 4.6357%.
In his weekly comment, Citi managing director and fixed-income strategist George Friedlander noted it was not surprising that the drop in yields stopped last Thursday after the gains the market had made over the past two-and-a-half weeks. However, he said the "success of the [Build America Bonds] has created a fundamental transformation in the yield structure of the tax-exempt market."
The BABs will take a "huge bite" out of the amount of tax-exempt issuance that would come to market until Dec. 31, 2010, when the federal subsidy expires, he wrote. Between $75 billion and $100 billion of BABs could come to the market in 2009 in what would otherwise been tax-exempt issues.
Friedlander also said the BAB option will help keep a "ceiling on municipal yields many issuers would be willing to pay in the tax-exempt market."
"The success of these issues puts a ceiling on what yields on comparable tax-exempt issues are likely to be: if the required yield as a tax-exempt issue is higher than what the BAB market appears to require, the issuer will attempt to sell the BABs instead," he wrote.
The municipal market rallied along with the BAB issuance before halting at the end of the week. Last Thursday marked the first day of the month The Bond Buyer 40-bond index declined, and it has fallen each day since.
"We have hit the skids in the bond market," a trader in Los Angeles said. "The market had a pretty good rally for the past month. The last three or four days have been a non-event."
The Treasury market showed losses yesterday. The yield on the benchmark 10-year note, which opened at 2.91%, closed at 3.01%. The yield on the two-year note closed at 0.95% after opening at 0.90%. The yield on the 30-year bond, which opened at 3.83%, closed at 3.96%.
The Federal Open Market Committee began a two-day meeting yesterday that will culminate with its interest rate policy statement today. At its last meeting, the Fed maintained its target range for its federal funds rate at zero to 0.25%.
In economic data released yesterday, consumer confidence jumped to 39.2 in April from 26.9 in March, beating economists' expectations. Economists polled by IFR Markets had expected the index would rise to 29.5.
Today, first-quarter gross domestic product data will be released, with economists polled by IFR Markets expecting a 5% drop. Friday, the Institute for Supply Management's will release its manufacturing index, with economists expecting a 38.0 reading.
Michelle Kaske contributed to this column.
