The municipal market ended the session yesterday on a firm note amid robust retail demand for bonds from California's $1.75 billion general obligation issue.

Tax-exempt yields fell by as much as two to four basis points in the secondary as evidenced by firm new issue pricing and in spite of a large $350 million to $360 million bid wanted list from an arbitrage account that circulated earlier in the day.

"The slow return to normalcy may have started," a trader in New York said. "I think there's cash to be put to work. All the bonds were sold on that bid list in an orderly way. That was different from a month ago when people were throwing the baby out with the bath water."

Traders reported buying interest from retail and continued demand from crossover buyers.

"We're obviously very cheap on a relative basis," the trader added.

In spite of gains in municipals, the Treasury market mostly reversed its early advances in late trading. The two-year Treasury note was quoted up 3/32 to yield 1.87%, the 10-year Treasury note was quoted down 4/32 to yield 3.56% and the 30-year bond was quoted down 16/32 to yield 4.38%.

Trades reported by the Municipal Securities Rulemaking Board yesterday showed gains. A dealer sold to a customer California State University revenue 4.5s of 2044 at a yield of 4.96% yesterday down nine basis points from where they sold Monday. An interdealer trade of Connecticut special tax obligation revenue 5s of 2026 was priced with a yield of 4.52% down three basis points from where they traded earlier during the session. The New York City Transitional Finance Authority building aid revenue 5s of 2026 were sold to a customer with a yield 4.47% having been sold to a customer earlier in the day at a yield of 4.50%.

In the new issue market, Morgan Stanley opened a two-day retail order period on $1.75 billion of California tax exempt and taxable general obligation bonds.

By mid-afternoon retail orders totaled $750 million or 42.8% of the bonds offered.

The new-money and refunding deal carries ratings of A1 from Moody's Investors Service and A-plus from Standard & Poor's and Fitch Ratings. Retail orders will be continue today with institutional pricing scheduled for tomorrow.

The $1.7 billion tax-exempt portion comprised a 2009 maturity subject to a sealed bid, and serial maturities priced to yield from 2.79% in 2011 to 5.01% in 2028. A 2038 term maturity was priced with a 5.10% coupon to yield 5.14%. However, maturities in 2021, 2022 and 2024 through 2027, and a term maturity in 2033 are not available for retail.

A $50 million taxable portion comprising maturities from 2009 to 2011 will be priced as a spread to Treasuries and the coupon will be set Thursday afternoon. The 2009 maturity is subject to a sealed bid.

In other new issue activity, JPMorgan priced and repriced $250 million of Connecticut Health and Educational Facilities Authority revenue bonds on behalf of Yale University, converting outstanding Series T-1 and X-3 auction-rate securities to fixed-rate.

At a repricing, yields were lowered by five basis points on Series T-1 bonds and by roughly two basis points on the Series X-3 bonds.

Series T-1 comprising $125 million with a 2029 maturity was priced at par to yield 4.70% and the $125 million Series X-3 with a 2037 maturity was priced at par to yield 4.85%.

The bonds carry natural triple-A ratings from Moody's Investors Service and Standard & Poor's.

Bear, Stearns & Co. priced and repriced $219 million of Michigan general obligation bonds. At a repricing, yields were lowered by one basis point in 2019.

In the final scale, the tax-exempt Series 2008B, containing $200 million, was priced to yield from 4.78% in 2011 to 4.11% in 2019. Series 2008B comprised a $19 million taxable portion.

The bonds are rated Aa3 by Moody's and AA-minus by Standard & Poor's and Fitch Ratings.

JPMorgan also priced and repriced $215 million of Colorado Health Facilities Authority hospital revenue bonds on behalf of Poudre Valley Health Care Inc. and its affiliate Medical Center of the Rockies in Loveland, Colo., converting outstanding Series 2005 A, B, and C auction-rate securities to fixed-rate.

At a repricing, yields were lowered by two basis points.

Series 2005A, comprising a $50 million 2031 maturity, was priced with a 5.20% coupon to yield 5.22%, Series 2005B containing an $83 million 2036 maturity was priced with a 5.25% coupon to yield 5.27% and Series 2005C comprising an $82 million 2040 maturity was priced with a 5.25% coupon to yield 5.31%.

The bonds are insured by Financial Security Assurance and carry underlying ratings of Baa1 from Moody's Investors Service and BBB-plus from Standard & Poor's. Fitch Ratings does not rate the bonds.

In the competitive sector, Norfolk, Va., sold $58 million of water revenue bonds. Wachovia Bank NA won the deal with a true interest cost of 4.65% and reoffered serials from 2.25% in 2009 to 4.62% in 2027. Bonds due in 2028 and 2029 were not formally reoffered. A 2032 maturity was priced with a 4.75% coupon to yield 4.80% and a 2038 maturity was priced also with a 4.75% coupon to yield 4.84%.

The issue is rated A1 by Moody's, AA-plus by Standard & Poor's and AA by Fitch.

 

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