The municipal market was firmer yesterday.

"It's a little quiet, but better by about three or four basis points," a trader in New York said. "I think it's up because Treasuries are up, and that's because stocks are down. I wouldn't dispute there's new reinvestment money out there because of huge June coupon payments, but I think it's mostly moving in concert with Treasuries."

Trades reported by the Municipal Securities Rulemaking Board yesterday were unchanged to slightly firmer. A dealer sold to a customer New York City Municipal Water Financing Authority 4.625s of 2031 at 4.7%, down four basis points from where they traded in an interdealer trade on Friday. A dealer sold to a customer California's insured Fontana Unified School District 5.25s of 2025, down four basis point from where they traded on Friday. Bonds from an interdealer trade of Texas' insured Lower Colorado River Authority 5s of 2035 yielded 4.65, four basis points lower than where a dealer sold to a customer Friday.

The Treasury market showed gains yesterday. The yield on the benchmark 10-year Treasury note, which opened at 4.06%, finished at 3.97%. The yield on the two-year note was quoted near the end of the session at 2.53% after opening at 2.65%.

In economic data released yesterday, the overall economy grew for the 79th straight month, while the manufacturing sector remained in contraction for the fourth consecutive month, the Institute for Supply Management reported. The ISM index climbed to 49.6 in May from 48.6 in April. Economists polled by IFR Markets predicted the index would slip to 48.5.

Spending on construction projects fell 0.4% to a seasonally adjusted annual rate of $1.121 trillion in April as private construction decreased 0.5%, and public construction fell 0.3%. The overall decrease, which was smaller than the 0.6% decrease projected by IFR, followed a revised March decrease of 0.6% to a level of $1.126 trillion.

In a weekly report, Matt Fabian, managing director at Municipal Market Advisors, said the market "reached another inflection point" last week, with sellers "forced to concede prices as inflation fears and excess supply carried Treasury yields higher." He also wrote that "exceptional demand for high grades has left apparent credit spreads near their widest point since the rally to start the year."

Fabian wrote the market "should still be biased higher" this week, "assuming reinvestment-related bidding," but cautioned that the first week of June has seen positive price movement in just two of the last four years. He also warned that "recently strong stock market performance will attract retail dollars and mute what could otherwise be a solid bid from the newly ARS-less [market]."

More economic data will be released this week, highlighted Friday by the release of the May non-farm payrolls report. In addition, April factory orders will be released today, followed by first-quarter non-farm productivity, first-quarter unit labor costs, and the ISM non-manufacturing index tomorrow. On Thursday, initial jobless claims for the week ended May 31 and continuing jobless claims for the week ended May 24 will be released, followed by April wholesale inventories and April wholesale sales Friday.

Economists polled by IFR Markets are predicting that 60,000 jobs were lost in May. They are also forecasting a 0.1% drop in factory orders, a 0.9% gain in factory orders excluding transportation, a 2.5% annual rate for non-farm productivity, a 1.9% annual rate in unit labor costs, a 51.0 reading for the ISM non-manufacturing index, 374,000 initial jobless claims, 3.093 million continuing jobless claims, a 0.5% uptick in wholesale inventories, and a 0.5% rise in wholesale sales.

With the June rollover season getting underway this week, there should be strong demand for the large new issues scheduled for pricing in the primary as many investors are in need of fresh supply to reinvest their coupon, maturity, or redemption proceeds.

This week's calendar reflects a wide array of offerings from different sectors and from a variety of municipalities in both specialty and non-specialty states. A two-pronged aviation revenue offering totaling $600 million from Miami-Dade County is the largest scheduled deal, and will arrive amid the heightened seasonal demand.

The offering on behalf of Miami International Airport, which is scheduled to be priced tomorrow by Banc of America Securities LLC, will consist of $435 million of revenue bonds subject to the alternative minimum tax and $165 million of non-AMT debt. Serial bonds are structured to mature from 2016 to 2028, as well as term bonds in 2033, 2038, and 2041. The credit is rated A2 from Moody's Investors Service and A-minus from Standard & Poor's.

In the new-issue market yesterday, Banc of America priced for retail investors $41.2 million of lease rental revenue bonds for the Maine Governmental Facilities Authority. The bonds mature from 2008 through 2028, with yields ranging from 2.07% on a 4% coupon in 2009 to 4.67% on a 5% coupon in 2028. Bonds maturing in 2008 will be decided via a sealed bid. The bonds, which are callable in 2018, are insured by Assured Guaranty Corp. The underlying credit ratings on the bonds are A1 from Moody's and AA-minus from Standard & Poor's.

Subscribe Now

Independent and authoritative analysis and perspective for the bond buying industry.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.