Market Post: Primary Looks to Institutional Order Periods

After several issues opened retail order periods Monday, the tax-exempt market turned its attention to the primary market for indication on how deals would be received by institutions.

Still, one institutional secondary trader said he was seeing a little action. "It's somewhat busy," a New York trader said. "Munis are following Treasuries weaker by a tad but nothing special."

In the primary market, Wells Fargo Securities is expected to price for institutions $958.2 million of New York's MTA dedicated tax fund refunding bonds, rated AA by Standard & Poor's and AA-minus by Fitch Ratings.

In the retail order period Monday, yields on the first series, $895.2 million of current interest bonds, ranged from 0.43% with a 4% coupon in 2014 to 3.07% with a 4% coupon and 2.87% with a 5% coupon in a split 2031 maturity. Bonds maturing in 2013 were offered via sealed bid. The bonds are callable at par in 2022.

Bonds in the second series, $63 million of capital appreciation bonds, had a yield to maturity of 3.62% in 2032.

Bank of America Merrill Lynch is expected to price $246 million of Municipal Electric Authority of Georgia bonds, rated A1 by Moody's Investors Service and A-plus by Standard & Poor's and Fitch.

Barclays is expected to price $225 million of Pennsylvania Turnpike Commission turnpike subordinate revenue bonds and fund-enhanced turnpike subordinate special revenue bonds, rated A3 by Moody's and A-minus by Standard & Poor's and Fitch.

Bank of America Merrill Lynch is expected to price for institutions $217.6 million of Nebraska Public Power District general revenue bonds, rated A1 by Moody's, A by Standard & Poor's, and A-plus by Fitch.

In retail pricing Monday, yields on the first series, $114.6 million of general revenue bonds, ranged from 0.36% with a 3% coupon in 2014 to 3.75% priced at par in 2043. The bonds are callable at par in 2023.

The second series, $103 million of general revenue bonds, were not offered for retail.

On the competitive calendar, the District of Columbia is expected to auction $675 million of tax and revenue anticipation notes, rated MIG-1 by Moody's, SP-1-plus by Standard & Poor's, and F1-plus by Fitch.

On Monday, the two-year Municipal Market Data yield finished flat at 0.30% for the 14th consecutive trading session while the 10-year yield closed steady at 1.69% for the second session. The two-year yield fell two basis points to 2.82%.

The 10-year yield now trades nine basis points above its record low yield of 1.60% set July 26 while the 30-year yield hovers only three basis points above its 2.79% record low set July 25.

Treasuries were much weaker Tuesday morning after a mostly steady session Monday. The benchmark 10-year yield jumped four basis points to 1.71% while the 30-year yield spiked up five basis points to 2.90%. The two-year yield rose one basis point to 0.27%.

In economic news, the consumer price index rose 0.6% in September, near expectations while the core rate rose 0.1%.

"There are no signs here that the Fed is missing to the low side of its inflation target with both headline and core CPI inflation up 2.0% over the last year," wrote economists at RDQ Economics. "Moreover, with the momentum in headline inflation over the last three months high, with gasoline looking to add to CPI inflation again in October, and with the average annualized inflation rate during the fourth quarter of 2011 at only 0.3%, it seems likely that inflation will head higher into the end of the year on a 12-month rate of change basis. Although we do not see the risk of an imminent surge in inflation, the Fed is committed to further easing, which will further complicate its exit strategy should monetary tightening be needed in fairly short order to rein in inflation pressures."
In other economic news, industrial production rose 0.4% in September while capacity utilization increased to 78.3%. Economists had expected production to increase 0.2% and were on target with capacity use projections.

"At the margin, the industrial production and manufactured output data were a little better than expected in September but this does not change the picture that manufacturing activity contracted over the last three months and that manufacturing growth slowed over the last year," RDQ economists wrote. "However, the pickup in Chinese export growth in September could be a hint that global manufacturing conditions may be stabilizing (much depends on developments within the Eurozone on that score) and today's industrial production report is a little bit of a counterweight to our view that manufacturing would likely weaken further in the fourth quarter."

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