Munis Firmer as Demand Stays High

20080305f3qt8nft-1-scarchilli-michael.jpg

The municipal market was firmer yesterday, as buyers continued to flock to munis and demand for bonds remained high.

Traders said tax-exempt yields were lower by four or five basis points overall.

"It's firmer, and there's more business going on, especially in the long end," a trader in Los Angeles said. "With people I guess reading the newspapers over the weekend, boy, they put on the buy signal. And they're buying everything."

"There's pretty good appetite out there now for anything the market wants to put out there," the trader said. "As of right now, there is plenty of appetite to buy long securities, and if people are converting their auction rates to long securities, there's pretty good appetite out there right now to do the business."

Trades reported by the Municipal Securities Rulemaking Board yesterday showed gains. Bonds from an interdealer trade of Golden State Tobacco Securitization Corp. 5s of 2038 yielded 5.11%, down one basis point from where they were sold Tuesday. Bonds from an interdealer trade of California 5s of 2026 traded at 5.10%, two basis points lower than where they traded Tuesday. A dealer bought from a customer insured New Jersey Transportation Trust Fund Authority 4.75s of 2037 at 5.00%, two basis points lower than where they were sold Tuesday.

The Treasury market, however, showed losses yesterday, continuing its disengagement from tax-exempts. The yield on the benchmark 10-year Treasury note, which opened at 3.62%, finished at 3.70%. The yield on the two-year note was quoted near the end of the session at 1.66% after opening at 1.65%.

In a special meeting yesterday, the North Texas Tollway Authority approved changes in today's $2.3 billion revenue bond deal due to market conditions. Seeking to avoid locking in high fixed-rate costs, the NTTA will reduce its fixed-rate bonds to 30% of the deal from 50%, with 70% at variable rate.

With the variable-rate bonds backed by a letter of credit from Societe General, the authority expects strong demand for the debt, said financial adviser Rebecca Heflin of RBC Capital Markets.

"Since December, [the NTTA has] loaded up on fixed-rate debt," Heflin said. "With 100 basis point increase in yield, it wouldn't have been prudent to sell that much fixed-rate debt."

In the new-issue market yesterday, JPMorgan tentatively priced $127 million of pollution control revenue bonds for Georgia Power in three series.

The largest series, $55 million issued on behalf of the Burke County Development Authority, matures in 2032, was priced at par to yield 4.125%. The next largest series, $45 million issued on behalf of the Monroe County Development Authority, matures in 2025, was priced at par to yield 4.375%. The smallest series, another $27 million issued on behalf of the Burke County Development Authority, matures in 2032 and was priced at par to yield 4.125%. None of the bonds are callable. The credit is rated A2 by Moody's Investors Service, A by Standard & Poor's, and A-plus by Fitch Ratings.

Oyster Bay, N.Y., competitively sold $64.2 million of bond anticipation notes to various bidders. JPMorgan won the largest chunk, $44.2 million, with a net interest cost of 2.09%. The Bans mature in March 2009, yielding 1.83% priced at par.

The Washoe County, Nev., School District competitively sold $55 million of general obligation limited-tax school improvement bonds to Hutchinson, Shockey, Erley & Co. The bonds mature from 2009 through 2028, with yields ranging from 2.50% with a 4% coupon in 2009 to 4.39% with a 4.5% coupon in 2020. Bonds maturing in 2010, 2014, and from 2021 through 2028 were not formally re-offered. The bonds, which are callable at par in 2018, are rated Aa3 by Moody's, AA by Standard & Poor's, and AA-minus by Fitch.

In economic data released yesterday, nonfarm productivity increased 1.9% in the fourth quarter, after a 6.3% rise the previous quarter. Economists polled by IFR Markets had predicted a 1.8% increase.

Unit labor costs rose 2.6% in the fourth quarter, after a 2.7% drop the previous quarter. Economists polled by IFR had predicted a 2.1% rise.

New factory orders for manufactured goods slumped 2.5% in January. The factory order decrease to $429.224 billion, matched the 2.5% decrease projected by IFR Markets and came after a revised 2.0% increase to $440.035 billion in December, originally reported as a 2.3% increase to $444.566 billion.

Excluding transportation, the level of all new manufacturing orders slid 0.4% to about $367.8 billion in January, following a 0.6% rise in December to $369.4 billion. The decrease compared to a 2.3% decrease projected by IFR.

The Institute for Supply Management's non-manufacturing business activity composite index was 49.3 in February, up from 44.6 in January. Economists polled by IFR had expected a 47.5 level.

For reprint and licensing requests for this article, click here.
MORE FROM BOND BUYER