The municipal market was weaker by about four basis points yesterday as participants digested news that Moody's Investors Service late Monday put its triple-A ratings of bond insurers Financial Security Assurance Inc. and Assured Guaranty Corp. on review for possible downgrade.
"It's just trying to sort out the FSA, Assured thing, and that's adding to a tough environment as it is," a trader in New Jersey said. "An environment of little liquidity, little interest, and this doesn't help. It's a little bit early, but the news about the insurers is still being digested. At first blush, it looks like the rating agencies are being a little more proactive than they've been over the past few years. I don't want to say it's overreaction, but they're maybe just being a little more aggressive."
On a day when muni yields rose against a backdrop of weakness in the overall market, bonds insured by Assured Guaranty and FSA reflected that weakness in the secondary market, with yields just slightly higher among that paper than in the market as a whole.
A dealer sold to a customer Assured-insured Fresno, Calif., 5s of 2037 at 4.65%, five basis points higher than where they traded Monday. Bonds from an interdealer trade of Assured-backed Dormitory Authority of the State of New York 5s of 2033 yielded 4.80%, up five basis points from where they were sold Monday. A dealer sold to a customer FSA-insured South Dakota Building Authority 5s of 2028 at 4.82%, four basis points higher than where they were sold Monday. Bonds from an interdealer trade of Assured-backed Forney, Tex., 4.75s of 2033 yielded 4.96%, five basis points higher than where they traded Monday.
"Treasuries are obviously moving, and that's a main factor in the weakness," a trader in Los Angeles said. "But a lot of people are paying attention to the FSA and Assured news."
The Treasury market showed losses yesterday. The yield on the benchmark 10-year Treasury note, which opened at 4.04%, finished at 4.12%. The yield on the two-year note was quoted near the end of the session at 2.73% after opening at 2.60%.
In the new-issue market yesterday, Minnesota competitively sold $432.2 million of general obligation bonds in two series. Bonds from the $275 million Series A various-purpose bonds were sold to Lehman Brothers, at a true interest cost of 4.10%. They mature from 2009 through 2028, with yields ranging from 2.15% with a 5% coupon in 2010 to 4.34% with a 5% coupon in 2023. Bonds maturing in 2009 and from 2024 through 2028 were not formally re-offered. The bonds are callable at par in 2018.
Bonds from the $157.2 million Series C state refunding bonds were sold to Lehman, at a TIC of 3.52%. They mature from 2009 through 2019, with yields ranging from 2.15% with a 5% coupon in 2010 to 3.96% with a 5% coupon in 2019. These bonds are not callable. The credit is rated Aa1 by Moody's and AAA by Standard & Poor's and Fitch Ratings.
Morgan Stanley priced $254.4 million of state contract bonds for the New Jersey Health Care Facilities Financing Authority. The bonds mature from 2009 through 2018, with term bonds in 2023, 2028, and 2038. Yields range from 2.42% with a 5% coupon in 2009 to 5.45% with a 5.25% coupon in 2038. The bonds, which are callable at par in 2018, are rated A1 by Moody's, AA-minus by Standard & Poor's, and A-plus by Fitch.
Triple-A rated Montgomery County, Md., competitively sold $250 million of GO consolidated public improvement bonds to Wachovia Bank NA, at a TIC of 4.18%. The bonds mature from 2009 through 2028, with yields ranging from 2.20% with a 3% coupon in 2010 to 3.77% with a 5% coupon in 2018. Bonds maturing in 2009, 2013, and from 2019 through 2028 were not formally re-offered. The bonds are callable at par in 2018.
Citi priced $223.1 million of revenue and refunding bonds for the Michigan State Hospital Finance Authority. The bonds mature from 2010 through 2018, with term bonds in 2028 and 2038. Yields range from 3.37% with a 5% coupon in 2010 to 6.00% with a 5.75% coupon in 2038. The bonds, which are callable at par in 2018, are rated A1 by Moody's and AA-minus by Fitch.
Banc of America Securities LLC priced $55.3 million of revenue bonds for the Maryland Health and Higher Educational Facilities Authority. The bonds mature in 2018, 2028, and 2038, yielding 5.25% with a 5.5% coupon, 5.85% with a 5.5% coupon, and 6.05% with a 6% coupon, respectively. The bonds, which are callable at par in 2018, are rated Baa2 by Moody's and BBB-plus by Fitch.
Prince William County, Va., competitively sold $46.9 million of GO public improvement bonds to Robert W. Baird & Co. with a TIC of 4.13%. The bonds mature from 2009 through 2028, with yields ranging from 1.85% with a 2.5% coupon in 2009 to 4.65% with a 4.5% coupon in 2028. The bonds, which are callable at par in 2018, are rated Aa1 by Moody's and AAA by Fitch.
Kentucky's Louisville-Jefferson County Metro Government competitively sold $43.6 million of mortgage revenue bonds to Robert W. Baird with a net interest cost of 4.50%. The bonds mature from 2009 through 2026, with yields ranging from 2.27% with a 3% coupon in 2010 to 4.78% with a 4.5% coupon in 2026. Bonds maturing in both 2009 and 2028 were not formally re-offered. The bonds, which are callable at par in 2018, are rated Aa3 by Moody's and AA-minus by Standard & Poor's.
Treasury Secretary Henry Paulson yesterday said he believed the best thing for the mortgage sector would be to shore up Fannie Mae and Freddie Mac, increasing the belief that a Fed bailout is on the horizon. And Philadelphia Federal Reserve Bank president Charles Plosser said he expected tightening of monetary policy "sooner rather than later" to contain inflation.
The economic calendar was light yesterday, but a slate of economic data will be released later this week. Tomorrow, initial jobless claims for the week ended July 19 will be released along with continuing jobless claims for the week ended July 12,and June existing home sales. On Friday, durable goods orders for June, new home sales for June, and the final July University of Michigan consumer sentiment index will be released.
Economists polled by IFR Markets are predicting 375,000 initial jobless claims, 3.120 million continuing jobless claims, 4.940 million existing home sales, a 0.4% decline in durable goods, a 0.2% dip in durable goods excluding transportation, 505,000 new home sales, and a 56.4 reading of the University of Michigan sentiment index.
