The municipal market was unchanged to slightly weaker yesterday, with the weakness again situated at the long end of the curve, as Illinois came to market with $1 billion of Build America Bonds.
“It’s been more or less the same story all week,” a trader in New York said. “We’re not seeing much movement on the shorter and intermediate parts of the curve, but the long end is cheapening up. Today is no exception. We’re about one or two basis points weaker out long, and mostly unchanged aside from that.”
“There’s some weakness out long, but we’re pretty flat elsewhere,” a trader in Los Angeles said. “There’s not a whole lot going on in the secondary, it’s fairly quiet. But there is a bit of weakness out long, maybe a basis point or two.”
In the new-issue market yesterday, Barclays Capital priced $1 billion of general obligation bonds as taxable BABs for Illinois.
The bonds mature from 2011 through 2022, with a term bond in 2035. Yields range from 1.395% priced at par in 2011, or 0.91% after the 35% federal subsidy, to 6.63% priced at par in 2035, or 4.31% after the subsidy. The bonds were priced to yield between 105 and 205 basis points over the comparable Treasury yield.
Bonds maturing from 2011 through 2022 are callable at Treasuries plus 25 basis points, and bonds maturing in 2035 are callable at Treasuries plus 37.5 basis points.
The credit is rated A2 by Moody’s Investors Service, A-plus by Standard & Poor’s, and A by Fitch Ratings.
The Treasury market was somewhat mixed yesterday. The yield on the benchmark 10-year note opened at 3.65% and was quoted near the end of the session at 3.66%.
The yield on the two-year note opened at 0.91% and was quoted near the end of the session at 0.88%. The yield on the 30-year bond was quoted near the end of the session at 4.57% after also opening at 4.57%.
Yesterday’s Municipal Market Data triple-A scale yielded 3.00% in 10 years and 3.82% in 20 years, compared to levels of 3.00% and 3.80% on Wednesday. The scale yielded 4.23% in 30 years yesterday, following Wednesday’s level of 4.21%.
As of Wednesday’s close, the triple-A muni scale in 10 years was at 82.4% of comparable Treasuries and 30-year munis were 92.5% of comparable Treasuries, according to MMD, while 30-year tax-exempt triple-A general obligation bonds were at 95.2% of the comparable London Interbank Offered Rate.
Elsewhere in the new-issue market yesterday, Bank of America Merrill Lynch priced $168.8 million of revenue refunding bonds for Oregon’s Medford Hospital Facilities Authority.
The bonds mature from 2011 through 2024, with term bonds in 2028, 2035, 2036, and 2040. Yields range from 1.20% with a 3% coupon in 2011 to 5.17% with a 5.125% coupon in 2040.
The bonds, which are insured by Assured Guaranty Corp., are callable at par in 2020, except for bonds maturing in 2035, which are callable at par in 2015. The underlying credit is rated A-minus by Standard & Poor’s.
Trades reported by the Municipal Securities Rulemaking Board yesterday showed some losses.
A dealer sold to a customer Tennessee’s insured Memphis-Shelby County Airport Authority 5s of 2035 at 4.97%, up three basis points from where they were sold Wednesday. Bonds from an interdealer trade of taxable Fresno, Calif., BABs 6.5s of 2030 yielded 6.75%, up two basis points from where they were sold Wednesday.
A dealer sold to a customer Dallas-Fort Worth 5s of 2032 at 5.09%, one basis point higher than where they were sold Wednesday. Bonds from an interdealer trade of New York’s Metropolitan Transportation Authority 5s of 2035 yielded 4.96%, up one basis point from where they were sold Wednesday.
A dealer sold to a customer taxable Pennsylvania BABs 4.65s of 2026 at 4.66%, one basis point higher than where they were sold Wednesday. Bonds from an interdealer trade of insured Massachusetts 5.25s of 2022 yielded 3.25%, up one basis point from where they traded Wednesday.
In economic data released yesterday, durable goods orders increased 0.3% in December.
Though the headline figure was the first increase in the past three months, it was far below economists’ expectations.
The overall 0.3% increase in durable good orders followed a revised 0.4% decline in November.
Meanwhile, new orders for durable goods excluding transportation rose 0.9%, following a revised 2.1% increase in November.
The 0.3% headline orders figure was far below a 2.0% increase predicted by a median estimate of economists polled by Thomson Reuters.
Initial jobless claims decreased 8,000 to a seasonally adjusted 470,000 for the week ending Jan. 23 from a downwardly revised 478,000 in the previous week.
Continuing claims fell by 57,000 to a seasonally adjusted 4.602 million for the week ending Jan. 16. Continuing claims for the week ending Jan. 9 were revised higher to 4.659 million.
Economists polled by Thomson Reuters expected 450,000 initial claims and 4.60 million continuing claims.
