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Market Post: Appetite Is There for New Munis Deals

JUL 19, 2011 1:47pm ET
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NEW YORK — Municipal bond investors are showing enthusiasm for the day’s new issuance. But it’s all geared toward specific buyers, according to a trader in New Jersey.

“There’s an appetite out there,” he said. “We’re still seeing July coupon money being reinvested. If any decent-sized blocks come out for the bid, the bid is there. And it seems like if the right retail bond comes along — and there are very few discounts right now — it gets gobbled up pretty quickly.”

The market has been watching the primary closely to gauge how it receives the new issuance. New supply is expected to total $8.27 billion this week, against a revised $5.71 billion last week. It is expected to be the largest volume for new debt offerings seen this year in the primary market.

On the day, Morgan Stanley priced $416.8 million of Ohio general obligation refunding bonds in four series. The bonds are rated Aa1 by Moody’s Investors Service, AA-plus by Standard & Poor’s and Fitch Ratings.

Yields for the first series, $184.3 million of common schools GO refunding bonds, range from 1.52% with a 5.00% coupon in 2016 to 3.65% with a 5.00% coupon in 2024. No more orders will be accepted for credits maturing in 2014 and 2015.

Yields for the second series, $108.1 million of higher education GO refunding bonds, range from 1.15% with a 5.00% coupon in 2015 to 3.65% with a 5.00% coupon in 2024. No more orders will be accepted for debt maturing in 2014.

Yields for the third series, $98.9 million of infrastructure improvement GO refunding bonds, range from 1.52% with a 4.00% coupon in 2016 to 3.65% with a 5.00% coupon in 2024. No more orders will be accepted for debt maturing in 2014 and 2015.

Yields for the fourth series, $25.5 million in natural resources GO refunding bonds, range from 1.15% with a 3.00% coupon in 2015 to 3.65% with a 4.00% coupon in 2024. No more orders will be accepted for credits maturing in 2014.

The deal has generated some action among investors, according to MMD Analyst Randy Smolik.

“This was the first deal we witnessed ample concessions from yesterday's retail pricing,” he wrote. “Most serials were adjusted 10 basis points cheaper.”

Goldman, Sachs & Co. priced $400 million of Regents of the University Of California general revenue bonds. The bonds are rated Aa1 by Moody’s, AA by Standard & Poor’s and AA-plus by Fitch.

The bonds mature in 2041. They will be priced to yield Libor plus 10 basis points.

The Municipal Market Data scale was not updated at press time. Earlier in the day, munis were steady across the front end of the curve.

Debt maturing between 2017 and 2022 is flat to one basis point higher. Tax exempts maturing from 2023 and 2041 are unchanged.

The benchmark 10-year muni yield ended Monday flat at 2.66% for the fifth straight day, 32 basis points beneath its average for 2011.

The two-year yield also held a 0.40% yield for a fifth consecutive day, its low for 2011.

The 30-year yield remained at 4.32% for a second straight session, 30 basis points under its average for the year.

Treasury yields crossed noon mostly unchanged, except at the long end of the curve. The 10-year yield is holding at 2.92%.

The two-year yield also is steady at 0.37%. The 30-year yield, though, has fallen two basis points to 4.29%.

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