Market Unmoved as FOMC Stands Pat on Rates

The municipal market was largely unchanged yesterday amid moderate activity in the secondary, and as the Federal Open Market Committee held its fed funds rate target unchanged for the ninth straight meeting.

"There's some trading — it's not terribly quiet out there, but there's very little movement," a trader in New York said. "I think we're pretty flat. I'm really not seeing things moving in any direction."

In the new-issue market yesterday, Jefferies & Co. priced $184.6 million of recovery act bonds for the New York Municipal Bond Bank Agency in three series.

The taxable Build America Bond portion of the pooled financing undertaken on behalf municipalities in the state was downsized when the bonds priced yesterday. The pooled financing was the first of four or five that offers municipalities a one stop shop to access the new taxable bond programs.

The tax-exempt portion was increased to $157.4 million from $120 million in the preliminary official statement and the BABs were decreased to $18.3 million from $60.5 million. The recovery zone economic development bonds portion, $8.9 million, was roughly what had been anticipated.

"Some of the maturities have some balances left over and those were underwritten by Jefferies ," said MBBA spokesman Philip Lentz. "But the deal has been completed."

Lentz referred specific questions to the lead underwriter on the deal, Jefferies.

"We feel a little uncomfortable analyzing market conditions," Lentz said.

Jefferies did not immediately respond to requests for comment.

The MBBA sold $157.4 million of tax-exempt bonds over the three series. Bonds from the $35.3 million Series A1 mature from 2010 through 2020, with yields ranging from 0.45% with a 2% coupon in 2010 to 3.28% with a 4.5% coupon in 2020. The bonds are not callable.

Bonds from the $24.9 million Series B1 mature from 2010 through 2029, with a term bond in 2034. Yields range from 0.70% with a 2% coupon in 2010 to 4.65% with a 4.5% coupon in 2034. The bonds are callable at par in 2019.

Bonds from the $97.1 million Series C1 mature from 2011 through 2024, with yields ranging from 1.50% with a 4% coupon in 2012 to 4.27% with a 5% coupon in 2024. Bonds maturing in 2011 were decided via sealed bid. The bonds are callable at par in 2020.

The MBBA also sold $18.3 million of BABs over three series. Bonds from the $9.4 million Series A2 mature in 2022 and 2024, yielding 5.161% and 5.661%, respectively, or 3.35% and 3.68%, respectively, after the 35% federal subsidy. The bonds were priced to yield 160 and 210 basis points, respectively, over the comparable Treasury yield. The bonds are callable at par in 2019.

Bonds from the $3.3 million Series B2 mature in 2033, yielding 6.879%, or 4.47% after the 35% federal subsidy. The bonds were priced to yield 237.5 basis points over the comparable Treasury yield. The bonds are callable at par in 2019.

Bonds from the $5.6 million Series C2 mature in 2019 and 2028, yielding 5.411% and 6.879%, respectively, or 3.52% and 4.47%, respectively, after the 35% federal subsidy. The bonds were priced to yield 185 and 237.5 basis points over the comparable Treasury yields, respectively. The bonds are callable at par in 2020.

Additionally, the MBBA priced $8.9 million of taxable RZEDBs in three series. Bonds from the $2.9 million Series A3 mature in 2029, yielding 6.454%. The bonds, which are callable at par in 2019, were priced to yield 195 basis points over the comparable Treasury yield.

Bonds from the $3.2 million Series B3 mature in 2034, yielding 6.879%. The bonds, which are callable at par in 2019, were priced to yield 237.5 basis points over the comparable Treasury yield.

Bonds from the $2.8 million Series C3 mature in 2019 and 2029, yielding 5.411% and 6.879%, respectively. The bonds, which are callable at par in 2020, were priced to yield 185 and 237.5 basis points over the comparable Treasury yields, respectively.

The Series A bonds are rated AA-plus by Standard & Poor's. The Series B bonds are rated A-plus by Standard & Poor's. The Series C bonds are rated A by Standard & Poor's.

Meanwhile, the FOMC yesterday held the federal funds rate target unchanged in its range of 0% to 0.25% for the ninth consecutive meeting. It also marked the first time the Fed went a full calendar year without a change to the funds rate since 1993.

"Pick a metaphor: upset the apple cart, throw a wrench in the works, rattle the cage, stir the pot; whatever the phrase of choice, it's clear that the Fed doesn't want to be accused of doing it, not right before year-end and not right before [chairman Ben] Bernanke's confirmation hearing," wrote Guy LeBas, fixed-income strategist at Janney Montgomery Scott LLC, in a comment.

"And December's monetary policy statement certainly avoids participating in any of those idioms," he wrote. "In fact, it's hard to remember the last time a FOMC policy release was quite so boring, so as-expected, and so not over-analyzed. In the scheme of things, given the monetary madness of the past 18 months, a staid statement heading into year-end probably isn't a bad thing."

The Treasury market was mixed yesterday. The yield on the benchmark 10-year note opened at 3.58% and finished at 3.59%. The yield on the two-year note opened at 0.85% and finished at 0.84%. The yield on the 30-year bond finished at 4.52% after also opening at 4.52%.

Yesterday's Municipal Market Data triple-A scale yielded 2.90% in 10 years and 3.64% in 20 years, matching Tuesday's levels of 2.90% and 3.64%, respectively. The scale yielded 4.12% in 30 years yesterday, matching Tuesday's level of 4.12%.

As of Tuesday's close, the triple-A muni scale in 10 years was at 80.6% of comparable Treasuries, 30-year munis were 91.2% of comparable Treasuries, and 30-year tax-exempt triple-A general obligation bonds were at 94.7% of the comparable London Interbank Offered Rate, according to MMD.

In economic data released yesterday, the consumer price index rose 0.4% in November boosted by a large monthly increase in gasoline prices. However, core consumer prices, which exclude food and energy costs, were unchanged for the month. Economists polled by Thomson Reuters expected the CPI to increase 0.4% in November and for core prices to increase 0.1%, according to the median estimate. Total consumer prices rose an unrevised 0.3% in October.

Groundbreaking for new home construction jumped 8.9% in November and housing permits increased 6.0% as the inventories for both components fell to record lows. Housing starts increased to 574,000, the highest level since June, from a downwardly-revised 527,000 in October. Building permits increased to 584,000, the highest level since May, from a downwardly revised 551,000 in October. Economists polled by Thomson Reuters expected 580,000 housing starts and 570,000 building permits, according to the median estimate.

Elsewhere in the new-issue market, JPMorgan priced for retail investors $243.8 million of revenue bonds for the Maryland Health and Higher Educational Facilities Authority.

The bonds mature from 2010 through 2019, with term bonds in 2024, 2029, 2034, and 2039. Yields range from 1.76% with a 3% coupon in 2011 to 5.14% with a 5% coupon in 2029. Bonds maturing in 2010 will be decided via sealed bid. Bonds maturing in 2034 and 2039 were not offered during the retail order period.

The bonds, which are callable at par in 2019, are rated A2 by Moody's Investors Service and A by Standard & Poor's and Fitch Ratings.

Also, final pricing details were released on Tuesday's sale of $511 million of PILOT revenue bonds for New York's Brooklyn Arena Local Development Corp.

Goldman, Sachs & Co. priced the debt, which matures from 2014 through 2020, with term bonds in 2030, 2040, and 2043. Yields range from 4.21% with a 5.75% coupon in 2014 to 6.48% with a 6.375% coupon in 2043.

The bonds, which are callable at par in 2020, are rated Baa3 by Moody's and BBB-minus by Standard & Poor's.

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