NEW YORK - The municipal market was firmer today, after Federal Reserve Board Chairman Ben S. Bernanke testified that the economy should grow modestly this year, and that there are indications that inflation, while still a concern, is reducing.
In testimony today before the Senate Committee on Banking, Housing, and Urban Affairs, Bernanke said, “the U.S. economy seems likely to expand at a moderate pace this year and next, with growth strengthening somewhat as the drag from housing diminishes.” He also commented on inflation, stating, “there are some indications that inflation pressures are beginning to diminish.” However, he tempered that by saying, “the monthly data are noisy … and it will consequently be some time before we can be confident that underlying inflation is moderating as anticipated.”
Traders said municipal yields were lower by about three basis points, following a Treasury rally after the testimony.
“We are certainly rallying. There’s lot of activity on the short end especially,” a trader in New York said. “A lot of it started with the data first thing in morning, and then with Bernanke talking down inflation it just happened. This could prove to be interesting with a heavy supply week starting to move into the secondary.”
The Treasury market, which had initially showed firmness after lower than expected January retail sales data, rallied further in the wake of Bernanke’s comments. The yield on the benchmark 10-year Treasury note, which opened at 4.81%, was recently quoted at 4.73%. The yield on the two-year note was quoted recently at 4.87%, after opening at 4.93%.
In economic data released today, overall sales by U.S. retailers were unchanged in January at $370.4 billion. Excluding input from auto dealerships, sales rose 0.3% to just under $293.8 billion, after a 1.3% increase in December. The unchanged overall level for January followed a 1.2% increase in December. Economists polled by IFR Markets had projected a rise of 0.4% in retail sales and a 0.4% increase in sales excluding autos.
Traders reported by the Municipal Securities Rulemaking Board today showed gains. A dealer sold to a customer Texas 4.5s of 2007 at 3.62%, down two basis points from yesterday. Bonds from an interdealer trade of New Jersey Tobacco Settlement Corp. 5s of 2041 yielded 5.10%, down two basis points from yesterday. A dealer sold to a customer North Carolina 5s of 2012 at 3.69%, down two basis points from yesterday. A dealer bought from a customer Los Angeles Unified School District 4.5s of 2024 at 4.33%, down one basis point from yesterday.
The new-issue market is expected to be at its heaviest level of the week today, led by three large deals totaling over $4 billion. The three deals - to be brought to market by issuers in Puerto Rico, California, and Florida - make up more than two-thirds of the expected $6.21 billion of volume for the week. That projection is down slightly from the estimated $6.57 billion that hit the municipal primary last week, though that week was dominated by a slew of medium-sized deals.
In the largest scheduled transaction of the week, Citigroup Investment Banking is expected to price approximately $1.75 billion of new and refunding bonds in three series for the Puerto Rico Highways and Transportation Authority.
Moody’s Investors Service and Standard & Poor’s rate the authority’s $4 billion of outstanding transportation revenue bonds Baa3 and BBB-plus, respectively. The outstanding $392 million of subordinated transportation bonds are rated Baa1 by Moody’s and BBB by Standard & Poor’s.
California competitively sold $1.134 billion of various-purpose and refunding general obligation bonds in two series at today to Lehman Brothers today. The first series, $1 billion of various purpose GO bonds, was sold at a true interest cost of 4.48%. The bonds matures in 2007, from 2014 through 2029 and from 2032 through 2036. Bonds maturing in 2007, from 2015 through 2017, 2033 and 2036 were not formally re-offered. Yields range from 3.85% with a 5% coupon in 2014 to 4.54% with a 4.5% coupon in 2032. The bonds are callable at par in 2016. MBIA Insurance Corp. insures bonds maturing in 2027, Financial Security Assurance Inc. insures bonds maturing in 2028 and 2029, Ambac Assurance Corp. insures bonds maturing in 2035 and CIFG insures bonds maturing in 2036.
The second series, $133.9 million of refunding GO bonds, was sold at a TIC of 4.08%. The bonds mature from 2007 through 2019, however bonds maturing in 2009, 2016 and 2017 were not formally re-offered. Yields range from 3.67% with a 4% coupon in 2008 to 4.04% with a 4% coupon in 2018. The bonds are callable at par in 2016. MBIA Insurance Corp. insures bonds maturing in 2019. The underlying credit is rated A1 by Moody's, and A-plus by both Standard & Poor's and Fitch Ratings.
UBS Securities LLC will price $1.06 billion of high-risk account senior-secured refunding bonds for the Citizens Property Insurance Corp. in Florida today. The bonds are scheduled to mature from 2008 through 2017. MBIA Insurance Corp. will insure the entire sale.
The credit is rated A3 by Moody’s, A-plus by Standard & Poor’s, and A-minus by Fitch.
Goldman, Sachs & Co. tentatively priced $526 million of gas project revenue bonds for the Central Plains Energy Project, Neb., in two series. Series A, $238.8 million of fixed-rate bonds, matures from 2007 through 2021. Bonds maturing in 2007 were priced via sealed bid. Yields range from 3.78% with a 5% coupon in 2008 to 4.20% with a 5.25% coupon in 2021. The credit is rated Aa3 by Moody’s and AA-minus by both Standard & Poor’s and Fitch.
Series B, $287.2 million of index-rate bonds, mature in 2010, 2017 and 2026. These bonds have no call option.
Raymond James & Associates tentatively priced $326.5 million of subordinate water and sewer revenue bonds for the Birmingham Water Works and Sewer Board, Ala. The bonds mature serially from 2008 through 2025 with term bonds in 2027, 2029, 2032, 2039 and 2043. Bonds maturing in 2008 were decided via sealed bid. Yields range from 3.69% with a 4% coupon in 2009 to 4.63% with a 4.5% coupon in 2043. The bonds are callable at par in 2017 and are insured by Ambac Assurance Corp. The underlying credit is rated A2 by Moody’s and A by Standard & Poor’s.
Morgan Stanley tentatively priced $264.8 million of revenue and refunding bonds for the Kentucky Property and Buildings Commission. The bonds mature from 2008 through 2027 with yields ranging from 3.70% with a 4% coupon in 2008 to 4.29% with a 4.25% coupon in 2027. The bonds are callable at par in 2017. Financial Guaranty Insurance Co. insures bonds maturing from 2009 through 2027; the remaining bonds are uninsured. The underlying credit is rated Aa3 by Moody’s, A-plus by Standard & Poor’s and AA-minus by Fitch.
Banc of America Securities LLC tentatively priced $188 million of GO refunding bonds for the Metropolitan Water Reclamation District of Greater Chicago. The bonds mature from 2014 through 2022 with yields ranging from 3.85% with a 4% coupon in 2014 to 4.08% with a 5% coupon in 2022. The bonds have no call option and the credit is rated triple-A by Moody’s, Standard & Poor’s and Fitch.
Siebert, Brandford, Shank & Co. tentatively priced $176.8 million of rent-backed revenue and refunding bonds for the Housing Authority of Newark Port Authority, N.J., in two series. The first series, $7.3 million of revenue rent-backed bonds, matures from 2008 through 2016 with yields ranging from 3.60% with a 4.5% coupon in 2008 to 3.91% with a 4% coupon in 2016.This series has no call option. The second series, $168.5 million of rent-backed refunding bonds, matures from 2016 through 2028 with term bonds in 2032 and 2037. Yields range from 3.91% with a 5% coupon in 2016 to 4.50% with a 4.375% coupon in 2037. Bonds mature in 2037 are callable at par in 2017. MBIA Insurance Corp. insures bonds from both series. The underlying credit is rated AA-minus by Standard & Poor’s.
The Maryland Dept. of Transportation competitively sold $100 million of consolidated transportation bonds to Merrill Lynch & Co., with a true interest cost of 3.98%. The bonds mature from 2010 through 2022, however bonds maturing in 2021 and 2022 were not formally re-offered. Yields range from 3.64% with a 4% coupon in 2010 to 4.00% priced at par in 2020. The bonds are callable at par in 2017. The credit is rated Aa2 by Moody’s, AAA by Standard & Poor’s and AA by Fitch.
Also, JPMorgan priced for retail customers $97.3 million of water and sewer revenue bonds for Jacksonville, Fla.-based JEA. The bonds mature from 2010 through 2026 with term bonds in 2032, 2037 and 2041. Bonds maturing in 2032 and 2041 were not offered during the retail order period. Yields range from 3.75% priced at par in 2010 to 4.58% with a 4.5% coupon in 2037. The bonds are callable at par in 2012. XL Capital Assurance insures bonds maturing from 2014 through 2026 and in 2037; the remaining bonds are uninsured. The underlying credit is rated Aa3 by Moody’s, AA-minus by Standard & Poor’s and AA by Fitch Ratings.
Visible Supply
The Bond Buyer’s 30-day visible supply fell $1.317 billion to $11.979 billion. The total is comprised of $4.090 billion of competitive deals and $7.889 billion of negotiated bonds.
Previous Session’s Activity
The Municipal Securities Rulemaking Board reported 34,889 trades yesterday of 14,787 separate issues for volume of $22.54 million. Most active was the Dormitory Authority of the State of New York auction-rate securities of 2036, which traded 80 times at a high of par and a low of 99.95.
