The municipal market was flat to slightly firmer Tuesday amid light to moderate secondary trading activity, as 10-year munis reached a new record-low level of 2.51% and the Phoenix Civic Improvement Corp. priced $700 million of tax-exempt debt.
“The market is still feeling pretty firm,” a trader in New York said. “There isn’t a ton of activity, but there’s definitely a firmer tone, and I’d say we’re probably better a basis point or so in spots. Flat to better by one at this juncture.”
In the new-issue market Tuesday, Barclays Capital priced $699.4 million of revenue bonds for the Phoenix agency.
The revenue bonds were priced in three pieces — a $645.8 million tax-exempt series with maturities ranging from 2013 to 2040, a $32.2 million tax-exempt series with maturities from 2023 to 2025, and a 30-year recovery zone economic development bond with $21.3 million in face value.
Bonds from the $645.8 million tax-exempt series mature from 2013 through 2031, with term bonds in 2034 and 2040. Yields range from 1.41% with a 2% coupon in 2013 to 5.00% priced at par in 2040. The bonds are callable at par in 2020, except bonds maturing in 2034, which are callable at par in 2015.
Bonds from the $32.3 million tax-exempt series mature from 2023 through 2025, yielding 3.94%, 4.04%, and 4.17%, respectively, all with 5% coupons. The bonds are callable at par in 2020.
Bonds from the $21.3 million series of taxable RZEDBs mature in 2040 and yield 6.60% priced at par. The bonds were priced to yield 260 basis points over the comparable Treasury yield and contain a make-whole call at Treasuries plus 40 basis points.
Moody’s Investors Service rates the deal A1 and Standard & Poor’s rates it A-plus.
The Municipal Market Data triple-A scale yielded a record-low 2.51% in 10 years and 3.58% in 20 years Tuesday, following levels of 2.54% and 3.60% Monday. The scale yielded 3.91% in 30 years Tuesday, following 3.94% Monday.
Monday’s triple-A muni scale in 10 years was at 90.1% of comparable Treasuries and 30-year munis were at 98.3%, according to MMD, while 30-year tax-exempt triple-A general obligation bonds were at 107.4% of the comparable London Interbank Offered Rate.
The Treasury market was mixed Tuesday. The benchmark 10-year note was quoted near the end of the session at 2.77% after opening at 2.83%. The 30-year bond was quoted near the end of the session at 4.03% after opening at 4.01%. The two-year note was quoted near the end of the session at 0.53% after also opening at 0.53%.
Elsewhere in the new-issue market Tuesday, Portland, Ore., competitively sold $412.1 million of second lien sewer system revenue bonds to Bank of America Merrill Lynch.
The bonds mature from 2011 through 2035, with coupons ranging from 2% to 5%. The bonds were all sold and not available.
The bonds, which are callable at par in 2020, are rated Aa3 by Moody’s and AA by Standard & Poor’s.
The Michigan State Housing Development Authority competitively sold $87.8 million of rental housing revenue bonds to Bank of America Merrill Lynch.
The bonds mature from 2011 through 2020, with term bonds in 2025, 2030, 2035, 2040, and 2046. Yields range from 1.00% in 2011 to 5.25% in 2046, all priced at par.
The bonds, which are callable at par in 2020, are rated AA by Standard & Poor’s.
The Federal Open Market Committee Tuesday once again held its federal funds rate target unchanged at a 0% to 0.25% range, where it has remained since December 2008.
In a commentary, Guy LeBas, chief fixed-income strategist at Janney Capital Markets, wrote: “The non-decision was a non-surprise, even though in the period since the prior FOMC meeting, evidence of deteriorating conditions proved significant enough for Fed chairman Ben Bernanke to declare that 'the economic outlook remains unusually uncertain.’ ”
“That’s doesn’t mean 'poor,’ mind you, just unclear,” LeBas wrote. “And what should be clear at this juncture? The U.S. financial system is barely a year out from a string of crises that repeatedly threatened to collapse the financial system, the U.S. consumer is barely a year out from the biggest recession in three-quarters of a century, and U.S. firms aren’t sure whether to hire, fire, or just throw up their hands in desperation.”
In economic data released Tuesday, U.S. nonfarm productivity unexpectedly decreased 0.9% in the second quarter of 2010. Unit labor costs increased 0.2% for the quarter ending June 30.
Economists expected productivity to increase 0.2% for the quarter and for unit labor costs to increase 1.5%, according to the median estimate from Thomson Reuters.
Wholesale inventories increased 0.1% in June as wholesale sales dropped 0.7% following an unrevised 0.5% decrease in May.
Economists expected wholesale inventories to increase 0.4% and for sales to increase 0.5%, according to the median estimate from Thomson Reuters.
