The municipal market was weaker by four or five basis points yesterday, in line with Treasuries, which saw a reversal of Monday's steep gains as lawmakers expressed intent to salvage the $700 billion bailout plan that was voted down by the House Monday.
"We're really seeing a pickup now in individual investors," said Evan Rourke, portfolio manager at MD Sass. " They're just starting to really come in, and from our side, we're writing a lot of tickets at pretty good prices. That said, if you have a block of $5 million that you have to sell, it's going to come at a deep concession. So today was a very mixed day in terms of price discovery. You could point to some pretty high levels on some things, and you could point to some pretty cheap levels on some other things."
Rourke added that selling in the secondary market "did slow a little bit."
"[In the morning] it was really very little, and then late in the afternoon, in a typical pattern that we've had the last few days, guys were spitting stuff out that they just had to sell," he said. "But there wasn't quite the same volume they had the last week or so. It's slowed down definitely."
"It's been fairly difficult, and the main thing is to try to continue to stay with it," a trader in Los Angeles added. "You have to try not to let it get you down or get ahead of you, and just stay with it, and do the best you can. That's what I think most of us are doing.
In the new-issue market yesterday, the New York Transitional Finance Authority came to market with a $300 million sale of building aid revenue bonds, one of the largest deals to come to market since the turmoil began just over two weeks ago.
Merrill Lynch & Co. conducted a one-day retail order period on the bonds Monday, before successfully completing institutional pricing yesterday. Officials said the New York TFA sold $144 million of bonds to retail investors on the first of a three-day retail order period, selling out maturities from 2010 through 2016, from 2018 through 2021, and in 2023.
The bonds mature from 2010 through 2025, with term bonds in 2028, 2021, and 2038. Yields range from 3.00% priced at par in 2010 to 5.75% with a 5.5% coupon in 2038. The bonds, which are callable at par in 2018, are rated A1 by Moody's Investors Service, AA-minus by Standard & Poor's, and A-plus by Fitch Ratings.
Rourke said the successful completion of the deal could bring some issuers who had postponed their deals back into the primary market.
"I think issuers will try and come out if they can. I think they'll start to work their way back into the market," he said. "Deals definitely will come with a little bit of concession at the moment, but I think as more and more come to market, they will get a little bit more aggressive about trying to price things. The one thing I would do is make sure you have a retail order period on there, because that's what's really driving the equation right now."
Meantime, amid continued market uncertainty, Massachusetts postponed till next Tuesday a $700 million fixed-rate note sale which had originally been scheduled to sell tomorrow.
A Los Angeles trader said it will be difficult for many issuers to re-enter the primary market until there is resolution concerning the bailout plan.
"I think they need the bailout, and I think they need to feel like there's not going to be a whole lot of tender option programs coming undone here," the trader said. "For right now, we need to restore some confidence. We need to get that bill passed, and then we need to restore the confidence in the muni market, and that's unfortunately going to take some time. That's not going to happen overnight."
The Treasury market showed losses yesterday, after gains in the stock market. The yield on the benchmark 10-year Treasury note, which opened at 3.58%, was quoted near the end of the session at 3.83%. The yield on the two-year note opened at 1.66%, and was quoted near the end of the session at 1.95%. And the 30-year Treasury bond, which opened at 4.12%, was quoted near the end of the session at 4.31%.
Bill Hornbarger, fixed-income strategist at Wachovia Securities LLC, said that the Treasury market right now is "completely reactionary at this point to the prospects of a bailout plan, but more importantly what it means for stocks."
"I think that's where we are today, the fact that there's a little bit better feeling that there's going to be a Plan B, and that the Plan B is going to happen in relatively short order," he said. "I think that's why stocks are up and bonds are down today. Just reversing some of that flight-to-quality bid."
Hornbarger also would not rule out the possibility that the Federal Open Market Committee could issue an emergency cut to the federal funds rate target should the bailout plan fail completely.
"I think the Fed will do anything and everything it can to help the markets and economy through this," he said. "So I think there's things that they can do."
Trades reported by the Municipal Securities Rulemaking Board yesterday showed declines. A dealer sold to a customer Pennsylvania 4.75s of 2027 at 5.08%, up five basis points from where they were sold Monday. A dealer sold to a customer California 5s of 2032 at 5.73%, five basis points higher than where they traded Monday. A dealer sold to a customer Port Authority of New York and New Jersey 5s of 2038 yielded 5.16%, up six basis points from where they were sold Monday.
In economic data released yesterday, the Chicago purchasing managers' index came in at 56.7 in September, after registering 57.9 the previous month. Economists polled by Thomson Reuters had predicted a 53.0 reading for the index,
Also, the consumer confidence index rose to 59.8 in September, after a revised 58.5 the previous month. Economists polled by Thomson Reuters had predicted a 55.0 reading.