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Market Post: Munis, Treasuries Take Flight as Stock Markets Plummet

AUG 18, 2011 1:43pm ET
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NEW YORK — Turbulence in the stock market Thursday related to fear about the economies in the U.S. and Europe have investors grasping at low yields in the municipal market.

The stock market has been reacting to a couple of signs. First, Morgan Stanley cut its global forecast. Then the Department of Labor published some negative economic indicators. The combination has pulled nontraditional buyers over to munis, said a trader in Chicago.

“Our spreads are getting to the point where some crossover people, arbs and people who have money to put to work are taking a hard look,” he said. “They’re scared of the stock market.”

The market headed into the afternoon firmer along most of the curve, according to the Municipal Market Data scale. Bonds maturing through 2015 are flat to three basis points lower. Debt maturing from 2016 to 2026 is three to eight points lower. Maturities beyond 2026 are down four to seven basis points.

Munis yields inched downward across most of the curve Wednesday. The 10-year muni yield slipped one basis point to 2.22%, its lowest since Sept. 2.

The 30-year muni yield ticked down a basis point to 3.85%, its lowest level since Oct. 26. And the two-year muni yield remained at 0.30%, its lowest yield in more than two years.

Treasury yields are still falling, firming across most of the curve. The benchmark 10-year Treasury yield fell eight basis points to 2.08%. It fell a few basis points below 2.00% briefly, before softening somewhat.

The 30-year yield dropped 11 basis points to 3.45%. The two-year yield has held steady at 0.20, two basis points above its all-time low.

New issuance dominated the industry Wednesday. The amount reaching the market this week is expected to more than double last week’s total. Volume should rise to around $5.28 billion from the minuscule $2.25 billion of municipal bond sales seen last week, according to industry estimates.

For Thursday’s deals, Barclays Capital priced $400.2 million Regents of the University of California general revenue bonds in taxable and tax-exempt series. The bonds were rated Aa1 by Moody’s Investors Service, AA by Standard & Poor’s, and AA-plus by Fitch Ratings.

Yields for the first series, $355.3 million of tax-exempt 2011 series AB bonds, range from 0.30% priced at par in 2013 to 4.39% with a 5.00% coupon in 2041. Credits maturing in 2012 were offered in a sealed bid. Yields either increased or decreased by at most one basis point at repricing.

The spread to Treasuries for $44.9 million of taxable 2011 series AC bonds range from 60 basis points in 2013 to 160 basis points in 2041.

Goldman, Sachs & Co., priced $288.6 million of South Carolina Public Service Authority revenue bonds. The bonds are rated Aa3 by Moody’s, AA-minus by Standard & Poor’s, and AA by Fitch.

Yields range from 0.48% with a 5.00% coupon in 2013 to 2.70% with 4.00% and 5.00% coupons in a split maturity in 2021. The yields fell as much as seven basis points in repricing.

The major equities indexes are churning the markets once again, with all three down by at least 3.76% crossing noon. The Dow Jones Industrial Average has plunged 428 points.

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