The municipal market was slightly firmer yesterday.
"It's fairly quiet, but we're a little firmer," a trader in New York said. "We're following Treasuries a bit, and I'd say yields are lower by about two basis points."
The Treasury market showed gains yesterday. The yield on the benchmark 10-year Treasury note, which opened at 3.45%, finished at 3.42%. The yield on the two-year note was quoted near the end of the session at 1.61% after opening at 1.65%.
In economic data released yesterday, the Chicago Purchasing Managers' Business Barometer rose to 48.2 in March from 44.5 in February. Economists polled by IFR Markets predicted a 46.0 reading for the indicator.
In a weekly report, Matt Fabian, managing director at Municipal Market Advisors, wrote that, "municipal yields are edging higher amid a locked battle between compelling long-term value and deeply uncertain near-term performance."
"Last week, the Treasury market volatility remained high, with a flight to quality reversal on Monday but more modest shifts thereafter," he wrote. "Munis are unable to follow taxables without more distinct pricing leadership from dealers and hedge funds, which are challenged by balance sheet and volatility/liquidity concerns, respectively."
He added that traditional investor participation has been light, for several reasons.
"Prices that are too high to incite a return of institutional crossover demand but too low to compel sellers; substantial Cusip-by-Cusip evaluation uncertainty; turmoil in the [auction-rate securities] and [variable-rate demand obligation] markets; continued bond insurer trauma; looming negative seasonal trends; a reduced need for tax-exempt income; and prospects for massive new supply," he wrote.
A $1.2 billion offering of New York City variable-rate demand bonds and $617 million of debt for the New Jersey Economic Development Authority lead the way in the primary market this week. The deals head up a slate of $7.3 billion, up from the $5.4 billion of bonds that were priced in the new-issue market last week.
"This week, new issue supply is again stronger and the taxable market faces a massive data calendar that ends with Friday's nonfarm payrolls indicator," wrote Fabian. "The Treasury's proposal of a massive regulatory restructuring may help unwind flight-to-quality flows, the related impact on municipals is less clear. Still, front-end strength may continue to erode with tax-related selling and ARS supply concerns. The yield curve is thus biased cheaper and flatter."
In the week's largest scheduled transaction, Merrill Lynch & Co. yesterday priced $1.2 billion of variable-rate demand bonds for New York City. Pricing information was not released by press time. The credit is rated Aa3 by Moody's Investors Service, AA by Standard & Poor's, and AA-minus by Fitch Ratings.
This comes on the heels of the city pricing $369 million of general obligation debt earlier this month. Merrill also priced that transaction, in two series. Bonds from the larger $357 million series yield from 2.45% with a 4% coupon in 2009 to 4.19% with a 4% coupon in 2018. Bonds from the smaller $12 million series mature from 2008 through 2018, with yields ranging from 2.25% in 2008 to 4.19%, all with 4% coupons.
Among all paper in the deal, bonds maturing from 2010 through 2012 were widest to that day's Municipal Market Data triple-A yield curve, with yields 49 basis points over the curve. Bonds maturing in 2009 were tightest to the scale, with yields 45 basis points over.
Morgan Stanley tomorrow will price $617 million of school facilities construction bonds for the New Jersey Economic Development Authority. The deal will convert auction-rate securities to fixed-rate bonds with puts.
Leading the competitive slate, Portland, Ore., Thursday will sell $554.1 million of sewer system revenue and refunding bonds in two series. The larger series, worth $339.9 million of first lien bonds, will mature from 2009 through 2033. The smaller series, worth $214.2 million of second lien bonds, will also mature from 2009 through 2033. The first-lien bonds are rated Aa3 by Moody's and AA-minus by Standard & Poor's. The second-lien bonds are rated A1 by Moody's and AA-minus by Standard & Poor's.
Also, UBS Securities LLC tomorrow will price $553.7 million of second lien water revenue project and refunding bonds for Chicago. The bonds will mature from 2009 through 2028, with term bonds in 2033 and 2038. The bonds will be insured, and the underlying credit is rated A1 by Moody's, AA-minus by Standard & Poor's, and AA by Fitch.
Elsewhere in the new-issue market yesterday, JPMorgan priced $36.5 million of bonds for Brownsville, Tex., in three series. Bonds from a $13 million series of general obligation public improvement and refunding bonds mature from 2015 through 2024, with a term bond in 2028. Yields range from 3.54% with a 4% coupon in 2015 to 4.87% with a 5% coupon in 2028. Bonds from a $17.3 million series of combination tax and revenue certificates of obligation mature from 2009 through 2024, with a term bond in 2028. Yields range 2.25% with a 4% coupon in 2009 to 4.87% with a 5% coupon in 2028. Bonds from a $6.2 million series of combination tax and airport revenue certificates of obligation, subject to the alternative minimum tax, mature from 2009 through 2023, with yields ranging from 2.85% with a 4% coupon in 2009 to 5.35% with a 5% coupon in 2023. All bonds are callable at par in 2018. The bonds are insured by Financial Security Assurance Inc. The underlying credit is rated A2 by Moody's and A-plus by both Standard & Poor's and Fitch.
Later this week, a slate of economic data will be released, with Friday's March non-farm payrolls report at the forefront. In other data, February construction spending and the March Institute for Supply Management index will be released today. Factory orders for February will be released tomorrow, followed by initial jobless claims for the week ended March 29, continuing jobless claims for the week ended March 22, and the March ISM non-manufacturing index Thursday.
Economists polled by IFR Markets are predicting that 50,000 jobs were lost in March. They are also forecasting a 48.0 reading for the ISM index, a 0.6% drop in factory orders, a 0.3% rise in factory orders excluding transportation, 366,000 initial jobless claims, 2.860 million continuing jobless claims, and a 49.0 reading for the ISM non-manufacturing index.
