NEW YORK – The municipal market was flat to slightly firmer Tuesday amid light to moderate secondary trading activity, as 10-year munis reached a new record-low level of 2.51%, and the Phoenix Civic Improvement Corp. priced $700 million of tax-exempt debt.
“The market is still feeling pretty firm,” a trader in New York said. “There isn’t a ton of activity, but there’s definitely a firmer tone, and I’d say we’re probably better a basis point or so in spots. Flat to better by one at this juncture.”
In the new-issue market Tuesday, Barclays Capital priced $699.4 million of revenue bonds for the Phoenix Civic Improvement Corp.
The revenue bonds were priced in three pieces - a $645.8 million tax-exempt series with maturities ranging from 2013 to 2040, a $32.2 million tax-exempt series with maturities from 2023 to 2025, and a 30-year recovery zone economic development bond with $21.3 million in face value.
Bonds from the $645.8 million tax-exempt series mature from 2013 through 2031, with term bonds in 2034 and 2040. Yields range from 1.41% with a 2% coupon in 2013 to 5.00% priced at par in 2040. The bonds are callable at par in 2020, except bonds maturing in 2034, which are callable at par in 2015.
Bonds from the $32.3 million tax-exempt series mature from 2023 through 2025, yielding 3.94%, 4.04%, and 4.17%, respectively, all with 5% coupons. The bonds are callable at par in 2020.
Bonds from the $21.3 million series of taxable RZEDBs mature in 2040 and yield 6.60% priced at par. The bonds were priced to yield 260 basis points over the comparable Treasury yield and contain a make-whole call at Treasuries plus 40 basis points.
Most of the proceeds of the deal will go toward financing the PHX Sky Train, which is designed to connect the city's airport terminals with a light-rail station, parking lot, and car rental outlet. The system is expected to carry over 35 million riders annually.
The bonds are secured by revenue collected by the airport. The airport expects to report almost $100 million in revenue available to pay debt service next year, enough to cover the costs of repaying interest and principal 1.8 times over.
Moody's Investors Service rates the deal A1 and Standard & Poor's rates it A-plus.
The Municipal Market Data triple-A scale yielded a record-low 2.51% in 10 years and 3.58% in 20 years Tuesday, following levels of 2.54% and 3.60% Monday. The scale yielded 3.91% in 30 years Tuesday, following 3.94% Monday.
Monday’s triple-A muni scale in 10 years was at 90.1% of comparable Treasuries and 30-year munis were at 98.3%, according to MMD, while 30-year tax-exempt triple-A general obligation bonds were at 107.4% of the comparable London Interbank Offered Rate.
The Treasury market was mixed Tuesday. The benchmark 10-year note was quoted recently at 2.77% after opening at 2.83%. The 30-year bond was quoted recently at 4.03% after opening at 4.01%. The two-year note was quoted recently at 0.53% after also opening at 0.53%.
Elsewhere in the new-issue market Tuesday, Portland, Ore., competitively sold $412.1 million of second lien sewer system revenue bonds to Bank of America Merrill Lynch.
The bonds mature from 2011 through 2035, with coupons ranging from 2% to 5%. The bonds were all sold and not available.
The bonds, which are callable at par in 2020, are rated Aa3 by Moody’s and AA by Standard & Poor’s.
The money Portland is borrowing will be used mostly to pay for improvements to the city's sewage treatment systems and stormwater programs, among other things.
The sewer system last year produced $156.7 million in revenue applicable for paying debt service, enough to cover $119.6 million in debt-service costs.
The Michigan State Housing Development Authority competitively sold $87.8 million of rental housing revenue bonds to Bank of America Merrill Lynch.
The bonds mature from 2011 through 2020, with term bonds in 2025, 2030, 2035, 2040, and 2046. Yields range from 1.00% in 2011 to 5.25% in 2046, all priced at par.
The bonds, which are callable at par in 2020, are rated AA by Standard & Poor’s.
The Federal Open Market Committee once again held its federal funds rate target unchanged at a 0% to 0.25% range, where it has remained since December 2008.
In a commentary, Guy LeBas, chief fixed income strategist at Janney Capital Markets, wrote “the non-decision was a non-surprise, even though in the period since the prior FOMC meeting, evidence of deteriorating conditions proved significant enough for Fed Chairman Ben Bernanke to declare that ‘the economic outlook remains unusually uncertain.’”
“That’s doesn’t mean ‘poor,’ mind you, just unclear,” LeBas wrote. “And what should be clear at this juncture? The U.S. financial system is barely a year out from a string of crisis that repeatedly threatened to collapse the financial system, the U.S. consumer is barely a year out from the biggest recession in three quarters of a century, and U.S. firms aren’t sure whether to hire, fire, or just throw up their hands in desperation.”
In economic data released Tuesday, U.S. nonfarm productivity unexpectedly decreased 0.9% in the second quarter of 2010, the first decline in six quarters.
Unit labor costs increased 0.2% for the quarter ending June 30, the first increase in a year as hourly compensation fell.
Economists expected productivity to increase 0.2% for the quarter and for unit labor costs to increase 1.5%, according to the median estimate from Thomson Reuters.
Wholesale inventories increased 0.1% in June as wholesale sales declined for the second month in a row.
Wholesale sales dropped 0.7% following a 0.5% decrease in May. Sales had increased for 15 consecutive months going back to March 2009 before May’s decrease.
June inventories increased by the smallest amount since January. Inventories in May increased 0.5%, unrevised from last month’s report.
Economists expected wholesale inventories to increase 0.4% and for sales to increase 0.5%, according to the median estimate from Thomson Reuters.
Visible Supply
The Bond Buyer’s 30-day visible supply rose $845.9 million to $9.024 billion. The total is comprised of $2.383 billion of competitive bonds and $6.642 billion of negotiated bonds.
Previous Session's Activity
The Municipal Securities Rulemaking Board reported 36,685 trades of 12,941 issues for volume of $8.74 billion. Most active was insured taxable Illinois Build America Bonds 7.1s of 2035 that traded 501 times at a high of 104.160 and a low of 101.160.
