NEW YORK – Municipal bonds firmed three to five basis points on the short-end of the curve in early afternoon trading, as tax-exempts react to yesterday’s FOMC policy announcement.
“Spreads are coming in a little bit,” said a trader in San Diego. He noted that most activity is in the five- to seven-year range, where the Federal Reserve is concentrating its purchases of Treasuries in its $600 billion second quantitative easing plan.
A trader in New York added that yields on the MMD scale will strengthen between three and five basis points on the short end today, while yields on the long end have remained unchanged.
“Based on what the Fed is doing as far as buying bonds, our market is trying to represent that we’re going to correspond with them on the short-end,” he said. “The trouble is, yields are so darn low right now in munis that you have to go out past five years to get anything well above 1%, so I think retail is still going to have a difficult time.”
Tax-exempts were unchanged Wednesday at the short and intermediate end of the curve, while long-term bonds weakened. The triple-A-rated two-year note was flat at 0.46% and the triple-A rated 10-year note remained at 2.51%, according to Municipal Market Data. The triple-A rated 30-year yield weakened two basis points to 3.90%.
Wednesday’s triple-A muni scale in 10 years was at 95.8% of comparable Treasuries and 30-year munis were at 96.1%, according to MMD.
In the new-issue market Thursday, JPMorgan priced $588 million of airport general revenue bonds for Atlanta.
Assured Guaranty Municipal insured maturities (2021, 2028, 2035, and 2040) are rated Aa3 by Moody’s Investors Service and AA-plus by Standard & Poor’s. The underlying ratings are A1 from Moody's and A-plus by Fitch Ratings. Maturities range from 2014 to 2024, with yields from 1.63% to 4.09%.
Morgan Stanley offered a final pricing for $391 million of general obligation Build America Bonds for Rutgers University.
The taxable bonds are rated Aa2 by Moody’s and AA by Standard & Poor’s. Maturities between 2019 and 2022 offer yields from 3.776% to 4.376%. Also, bonds maturing in 2029 yield 5.545% and bonds maturing in 2040 yield 5.665%.
The 2022 maturity offers the greatest value versus comparable Treasuries with a 180 basis point spread.
Also, JPMorgan priced $81 million of general obligation refunding bonds for the Spokane School District No. 81.
The tax-exempt bonds are enhanced by the Washington State School District Credit Enhancement Program and carry a Aa1 rating from Moody’s and a AA-plus rating from Standard & Poor’s.
Yields range from 0.84% in 2013 to 3.04% in 2022.
Elsewhere, Goldman, Sachs & Co. offered a final pricing for $109 million of electric revenue bonds for the Piedmont Municipal Power Agency in North Carolina.
The tax-exempt bonds, priced in four series, are rated Baa1 by Moody’s, A-minus by Standard & Poor’s, and BBB-plus by Fitch Ratings. Yields range from 2.80% in 2017 to 4.25% in 2025.
The San Diego trader, who works with retail customers, said he’s been receiving calls from clients seeking to unload paper backed by Ambac Assurance Corp. Ambac’s parent, Ambac Financial Group, announced Monday it was on the verge of bankruptcy.
“A lot of individual customers are seeing the news out there and noticing they have Ambac-backed bonds in their accounts, so they’re trying to sell them.”
Ambac-wrapped bonds tend to trade on the underlying credit of the bonds rather than the junk-rated “enhanced” level, but the trader said clients are less confident about the underlying values as well.
“Clients have seen the increasing chatter of municipalities, and they’re starting to get nervous,” he said, adding that equities are looking increasingly attractive in this climate.
The Dow Jones Industrial Index hit a two-year high Wednesday and in early afternoon trading it climbed another 192 points to 11,406.76.
Among Treasuries, the benchmark 10-year note strengthened overnight and was recently quoted at 2.49%, or 14 basis points stronger than Wednesday’s closing yield of 2.63%.
Movements on the short and long ends of the Treasury curve were less dramatic. The two-year Treasury yield remains at 0.34%, and the 30-year bond moved two basis points lower to 4.04%.
Long-term Treasury bonds ran up Wednesday in anticipation of the FOMC statement but quickly shed those gains once it became clear the Fed would not be buying much long-term product in its expanded program of quantitative easing.
The Fed intends to purchase $600 billion of Treasury assets by mid-2011. But just 4% of the purchases will be in the 17-30 year range, according to the Open Market Trading Desk, which conducts the operations. Nearly two-thirds of the purchases will be in the 2.5 to 7-year range.
“Traders were apparently looking for the Fed to go longer . . . which led to buy the rumor, sell the news madness in the long bond,” said Guy Lebas, chief of fixed income at Janney Capital Markets.
Elsewhere in the new-issue market, JPMorgan is taking orders for $133 million of tax-exempts for the Chicago Park District. Maturities are offered in 2013, from 2015 through 2030, and in 2033, 2037, and 2040. Yields range from 1.06% in 2013 to 4.77% in 2040.
In new economic data, 457,000 initial jobless claims were reported in the week ending Oct. 30, 20,000 more than in the prior week.
“Claims remain very high relative to layoff announcements and have yet to show a more marked move downwards that would signal more solid job creation than we have seen thus far this year,” said economists at RDQ Economics, a forecasting firm.
Visible Supply
The Bond Buyer’s 30-day visible supply rose $16 million to $15.970 billion. The total is comprised of $3.813 billion of competitive bonds and $12.157 billion of negotiated bonds.
Previous Session's Activity
The Municipal Securities Rulemaking Board reported 41,240 trades of 15,014 issues for volume of $12.27 billion. Most active was State of New York mortgage agency revenue 4.10s of 2026 that traded 223 times at a high of par and a low of 99.250.
