The municipal market was slightly firmer Thursday, amid light to moderate secondary trading activity, as the Los Angeles Community College District brought $900 million of taxable Build America Bonds to the primary and the municipal scale dipped to 3.98% on the long end.
“The market continues to feel good,” a trader in Chicago said. “Stock markets are off. The Treasury auctions are out of the way. There is a relief rally. We are running well. There is still a scarcity of good credits. Prices are aggressive. The spreads between the lower quality and higher quality have tanked.”
A trader in San Francisco said Thursday “seems to be the strongest day of the week.”
“There are more buyers and sellers,” the trader said. “There are very good flows today. We have shortage of paper around. Credit spreads continue to tighten. Maybe they are going to bump up the price by two or three basis points.”
In the new-issue market, Citi priced $900 million sale of taxable BABs for the Los Angeles CCD.
The BABs mature in 2042 and 2049, yielding 6.54% with a 6.6% coupon in 2042, or 4.25% after the 35% federal subsidy, and 6.69% with a 6.75% coupon in 2049, or 4.35% after the subsidy.
The bonds were priced to yield 255 and 270 basis points over the comparable Treasury yield.
The Los Angeles CCD also brought to market $175 million of tax-exempt general obligation bonds.
Morgan Stanley priced the debt, which matures in 2039, yielding 4.70% with a 5.25% coupon. The bonds are callable at par in 2020.
The issuer’s credit is rated Aa1 by Moody’s Investors Service and AA by Standard & Poor’s.
The Treasury market mostly showed some gains Thursday. The benchmark 10-year note finished at 2.99%, after opening at 3.12%. The 30-year bond finished at 3.98% after opening at 4.03%. The two-year note finished at 0.62% after opening at 0.60%.
The Municipal Market Data triple-A scale yielded 2.62% in 10 years and 3.69% in 20 years Thursday, matching Wednesday. The scale yielded 3.98% in 30 years Thursday, down from 3.99% Wednesday.
Thursday’s triple-A muni scale in 10 years was at 86.6% of comparable Treasuries and 30-year munis were at 99.0%, according to MMD, while 30-year tax-exempt triple-A GOs were at 104.7% of the comparable London Interbank Offered Rate.
Elsewhere in the new-issue market Thursday, Bank of America Merrill Lynch priced $140 million of taxable GO working cash notes for the Regional Transportation Authority of Illinois.
The notes mature in 2012, yielding 2.843% priced at par, and were priced to yield 225 basis points over the comparable Treasury yield.
The notes were originally scheduled to sell last week and the agency originally delayed it until next week to allow the market to digest Wednesday’s $900 million Illinois BAB offering. But the RTA finance team decided to shift to this week to avoid Illinois’ planned $1.3 billion sale of GO certificates scheduled for late next week, said RTA chief financial officer Joe Costello.
The credit is rated Aa3 by Moody’s, AA by Standard & Poor’s, and AA-minus by Fitch.
Also, Ramirez & Co. priced $82.9 million of general revenue refunding bonds for the Los Angeles County Metropolitan Transportation Authority.
The bonds mature from 2011 through 2021, with yields ranging from 0.80% with a 4% coupon in 2012 to 3.45% with a 5% coupon in 2021. Bonds maturing in 2011 were not formally re-offered.
The bonds, which are callable at par in 2020, are rated Aa3 by Moody’s and A by Standard & Poor’s.
In economic data released Thursday, producer prices fell 0.5% in June, the third straight monthly decline and the largest since February.
Core producer prices, excluding food and energy costs, edged up 0.1%, in line with economists’ estimates and the eighth consecutive increase. Economists estimated producer prices would fall 0.1% and core prices would increase 0.1%, according to the median estimate from Thomson Reuters.
Initial jobless claims fell to 429,000 for the week ending July 10, the lowest level in almost two years, as fewer manufacturing workers were furloughed for seasonal reasons compared to previous years. Continuing claims increased by 247,000 to 4.682 million for the week ending July 3, the highest level since May 22. The four-week moving average for continuing claims increased for the first time in five weeks.
Economists expected 450,000 initial claims and 4.410 million continuing claims, according to the median estimate from Thomson Reuters.
The Federal Reserve Bank of Philadelphia said its manufacturing sector continued to improve but at a slower pace, as the general business conditions index slipped to 5.1 in July from 8.0 in June, this month’s Philadelphia Fed Report on Business indicated. Economists surveyed by Thomson Reuters predicted a reading of 10.0 for the index.
Priti Patnaik contributed to this column.
