Market Close: Munis Firm on New Deals, Economic Data

Municipal bonds gained Tuesday as traders, buoyed by economic data, rode out the first part of the week's wave of new issues.

"Prices were up at the end of the curve," a California-based trader said in an interview. "There was a ton of government data that came out today and both equity and treasury markets continue to react to quantitative easing: it's the drug that keeps getting served."

Treasury yields fell across the curve, with the benchmark 10-year and 30-year yields dropping eight basis points each, to 2.52% and 3.61%. The 2-year yield slid two basis points to 0.30%, according to data from Reuters.

Private payrolls grew 126,000 in September, lower than economist expectations of a jump of 182,000, and the unemployment rate fell to 7.2% from 7.3%, the Bureau of Labor Statistics reported Tuesday. The unemployment dip was largely a result of fewer available workers.

"We're feeling a little bit better," a trader in New York said. "Some subpar employment numbers came in so it says the economy's not doing too well. That means more quantitative easing and the feeling that rates will stay low forever."

The Bond Buyer's most recent 30-day visible supply showed $12.4 billion on the way, including $8.253 billion in potential volume this week. That's almost twice as much as the $4.388 billion introduced in the week ended October 18.

Yields on the triple-A Municipal Market Data scale fell as much as four basis points for bonds maturing between 2018 and 2043, and by three basis points for those maturing in 2017. Yields on bonds maturing in 2016 fell as much as two basis points.

"The market has seemed to find some stability here in the past couple of days," said a trader in New York. "Those prices have been sustainable and improved a little bit."

Traders said a firmer tone took hold in the marketplace today as investors eyed substantial new volume issue coming from California, New York and Pennsylvania deals.

"If we do absorb the $6 billion in bond volume this week and prices remain full, you have a good opportunity for the muni market to continue this way," the New York-based trader said.

Yields on bonds with maturities between 2014 and 2015 remained unchanged, according to the Reuters data.

"The gains are notable in light of the fact that in past recent weeks, municipals as a percent of treasuries has been hovering between 96-97%," another trader in New York said in an interview. "That's a fairly strong advance from over 100%."

Citigroup Global Markets Inc. priced $450 million of California state general obligation various purpose bonds Tuesday morning. The mandatory put bonds were offered with a 4% coupon maturing in 2026 and a 0.92% yield, and a 4% coupon in 2027 with a 1.33% yield. The bonds are callable at par in 2016 and 2017, respectively.

JPMorgan held institutional pricing for $1.61 billion of California general obligation bonds Tuesday, rated A1 by Moody's Investors Service and A by Standard & Poor's and Fitch Ratings.

Yields on institutional pricing for $698 million of the GOs ranged from 1.50% on 5% coupon bonds maturing in 2018, up two basis points from Monday, to 4.95% on 5% coupon bonds maturing in 2043. Bonds maturing in 2014 were offered in a sealed bid. They are callable at par in 2023.

On $659 billion of various purpose GOs, yields ranged from 1.93% with a 5% coupon maturing in 2019, up two basis points from Monday's pricing, to 4.44% with 5% coupons maturing in 2031. The bonds are callable at par in 2023.

In the market for competitive deals, Morgan Stanley priced $750 million of Pennsylvania commonwealth general obligation bonds.

"It was a successful bid," Jay Pagni, press secretary to the state's budget director, said. "We got a favorable rate given market conditions."

Yields on the Pennsylvania GOs ranged from 0.17% with a 3% coupon maturing in 2014 to 4.4% with a 4.375% coupon maturing in 2033. The bonds are callable at par in 2023.

"It appears that there are some good signs in the market," the New York-based trader said. "We're starting to see retail come back in and that's the first sign of heading in a good direction."

Yields on the Municipal Market Advisors benchmark scale ended Monday as much as four basis points lower. The 10-year yield fell three basis points to 2.73%, while the 30-year yield slid the same amount to 4.32%. The two-year stayed at 0.55% for the 10th straight session.

In the secondary market, trades compiled by data provider Markit showed strengthening across the board. Yields on Puerto Rico sales tax financing corporation bonds fell a basis point, while yields on Miami University of Ohio revenue bonds fell four basis points.

Puerto Rico bonds continued to stabilize, showing signs of the end of the "fire sale," according to one trader.

"Puerto Rico is trading better today, with yields on COFINA senior and sub bonds both lower by 20" basis points, Interactive Data said in a daily report, adding that there was a decent volume of secondary trades.

In other economic news, non-farm payrolls rose by 148,000 in September, according to the Bureau of Labor Statistics report. In August, non-farm payrolls rose a revised 193,000, originally reported as 169,000. Economists polled by Thomson/Reuters expected 180,000 new jobs.

Paul Burton contributed to this story.

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