The municipal market was unchanged to slightly firmer yesterday, as the Virginia Public School Authority came to market with $481 million of bonds, leading the new-issue offerings.
Traders said tax-exempt yields in the secondary market were flat to lower by about one basis point overall.
"We're a little bit better, but it's spotty," a trader in New York said. "There's some decent activity out there, particularly on the longer end, and out past I guess 10 or 15 years, you can pick up a basis point or two. The short end is just totally flat, and quiet. Overall though, I'd call it flat to maybe a tick better."
"It's still somewhat quiet out there, but it's definitely more active than yesterday," a trader in Los Angeles said. "I know that's not saying much, considering yesterday was a Jewish holiday and a Monday, but it's definitely more active. We're probably slightly better, maybe a basis point or two, here and there. But there's not a ton going on."
The Treasury market showed some gains yesterday. The yield on the benchmark 10-year note, which opened at 3.28%, was quoted near the end of the session at 3.31%. The yield on the two-year note was quoted near the end of the session at 1.01%, after opening at 0.97%, and the yield on the 30-year bond opened at 4.04% and was quoted near the end of the session at the same level.
Also yesterday, the Municipal Market Data triple-A scale yielded 2.57% in 10 years and 3.50% in 20 years, matching and extending their record lows, respectively, following yields of 2.57% and 3.52% Monday, respectively.
As of Monday's close, the triple-A muni scale in 10 years was at 78.1% of comparable Treasuries, according to MMD, while 30-year munis were 97.8% of comparable Treasuries. As of Monday's close, 30-year tax-exempt triple-A general obligation bonds were at 101.3% of the comparable London Interbank Offered Rate.
In the new-issue market yesterday, Wachovia Bank NA priced $481.3 million of school financing bonds for the Virginia Public School Authority. The bonds mature from 2011 through 2028, with yields ranging from 0.70% with a 3% coupon in 2011 to 3.78% with a 4% coupon in 2028. The bonds, which are callable at par in 2019, are rated Aa1 by Moody's Investors Service and AA-plus by both Standard & Poor's and Fitch Ratings.
Arizona's Salt River Project Agricultural Improvement and Power District competitively sold $325 million of electric revenue bonds to JPMorgan. Pricing information was not available by press time.
Washington's King County Rural Library District competitively sold $74.1 million of unlimited-tax general obligation bonds to JPMorgan, with a true interest cost of 2.61%. The bonds mature from 2010 through 2021, with yields ranging from 1.28% with a 2.25% coupon in 2012 to 2.62% with a 3% coupon in 2017. Bonds maturing in 2010, 2011, and from 2018 through 2021 were not formally re-offered. The bonds, which are callable at par in 2019 and are rated AA by Standard & Poor's.
Morgan Stanley priced $67.3 million of higher education facility revenue bonds for Ohio. The bonds mature in 2014 and 2019, yielding 1.875% and 2.95%, respectively, both with 5% coupons. The bonds, which are not callable, are rated Aa2 by Moody's and AA by Standard & Poor's.
Raymond James & Associates priced $46.7 million of sewage disposal system refunding bonds for Michigan's Western Townships Utilities Authority. The bonds mature from 2011 through 2017, with yields ranging from 1.43% with a 3% coupon in 2011 to 3.29% with a 5% coupon in 2017. The bonds, which are not callable, are rated AA by Standard & Poor's.
The New Jersey Turnpike Authority priced $35 million of current refunding bonds. Further details were not available by press time.
Trades reported by the Municipal Securities Rulemaking Board yesterday showed gains. A dealer bought from a customer Tennessee Energy Acquisition Corp. 5.25s of 2022 at 5.57%, down one basis point from where they traded Monday. Bonds from an interdealer trade of Minnesota 5s of 2022 yielded 2.91%, two basis points lower than where they were sold Monday. A dealer sold to a customer California 5.5s of 2030 at 4.69%, down two basis points from where they traded Monday.
Bonds from an interdealer trade of insured Port Authority of New York and New Jersey 5.125s of 2034 yielded 5.18%, down two basis points from where they were sold Monday. Bonds from an interdealer trade of New York City Housing Development Corp. 4.25s of 2024 yielded 4.27%, down one basis point from where they traded Monday.
In a weekly report, Phil Fischer, municipal strategist at BofA Merrill Lynch Global Research, wrote that "the debt markets generally, and the muni market particularly, continued their stunning rally."
"The Treasury market saw the successful auction of a record volume of notes," he wrote. "In munis, a solid new-issue calendar of taxable and tax-exempt deals easily cleared the market. The rally was fed by the continuing outflow from money market funds into bonds and bond funds. Nor do we see a quick end to the process since the Fed made it clear that money market yields would remain exceptionally low for some time."
Fischer also wrote that "the rally is eradicating negative arbitrage."
"Our negative arbitrage indicator, which had been more than [negative]-400 basis points early this year, headed past [negative]-200 recently," he wrote. "The index has improved, not, as we had expected, from rising Treasury note rates, but from plummeting tax exempt rates. If the rally on the long end of munis continues, as we expect it will, advance refundings could substantially increase the supply of tax-exempt coupons, helping to reduce the excess demand in the market. Advance refundings would also produce a new supply of pre-res and relieve the shortage of triple-As."
In economic data released yesterday, the consumer confidence index slipped to 53.1 in September from an upwardly revised 54.5 last month. Economists polled by Thomson Reuters predicted the index would rise to 57.0.
