Market Post: Munis Steady Ahead of Biggest Deal Pricing

The tax-exempt market was steady Wednesday morning ahead of pricing of the week’s largest deal as all attention turned to the primary market.

“Munis are slightly higher,” a New York trader said. “But there’s not much going on.” He added the secondary was relatively quiet as focus turns to new-issue pricing.

Munis were steady Wednesday morning, according to the Municipal Market Data scale. On Tuesday, the two-year yield closed flat at 0.31%. The 10-year yield finished steady at 1.73%, remaining six basis points above its record low of 1.67% set Jan. 18. The 30-year yield closed flat at its record low of 2.92%.

Since June 22, munis have traded steady or firmer, holding a 17-consecutive session streak of steady to lower yields. Over that time, the 10-year yield has dropped 13 basis points while the 30-year yield has plunged 24 basis points.

Treasuries were stronger. The two-year yield and the benchmark 10-year yield each fell one basis point to 0.24% and 1.49%, respectively. The 30-year was steady at 2.59%.

In the primary market, the Illinois Department of Employment Security is expected to come to market with $1.49 billion of unemployment insurance fund building receipts revenue bonds – led by JPMorgan with $777.9 million and Citi with $714 million. The credit is rated AA by Standard & Poor’s and AA-plus by Fitch Ratings.

Morgan Stanley is expected to price $200.7 million of Missouri Health and Higher Educational Facilities Authority taxable educational facilities revenue bonds for The Washington University. The bond are rated triple-A.

In the competitive market, Washington State is expected to auction $558.3 million of general obligation bonds in four pricings, including $271.6 million, $167.6 million, $78.5 million, and $40.6 million. The credit is rated Aa1 by Moody’s Investors Service and AA-plus by Standard & Poor’s.

Contra Costa, Calif., Water Authority is expected to auction $116.4 million of revenue bonds in two pricings – $23.1 million and $93.3 million. The credit is rated Aa2 by Moody’s and AA-plus by Standard & Poor’s.

In economic news, housing starts rose 6.9% to a seasonally adjusted annual rate of 760,000 in June. Building permits fell 3.7% to a seasonally adjusted annual rate of 755,000.

Housing starts came in better than the 745,000 expected by economists. Building permits failed to meet the 764,000 economists had predicted.

“This report corroborates other data in suggesting that housing construction activity is improving, albeit from low levels,” wrote economists at RDQ Economics. “Though housing starts rose 19% annualized in the first half of 2012, housing completions are running at around 600,000 units per year thus far in 2012, which suggests that builders are likely not adding significantly to the net housing stock through new construction. With single-family building permits up in four of the last five months, single-family housing starts may continue to trend higher in the months ahead.”

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