The municipal market was firmer yesterday, following Treasury gains. Traders said tax-exempt yields were lower by two to four basis points overall.
"There's a lot of movement on the short end. We're pretty sizably firmer there, inside of two years," a trader in New York said. "You're probably seeing gains of up to eight basis points that short. But the gains get smaller and smaller as you go out the curve, until they're practically nil out really long. Overall though, I think it's fair to call it around three basis points better."
Trades reported by the Municipal Securities Rulemaking Board yesterday showed gains. A dealer sold to a customer California 5.2s of 2026 at 5.41%, three basis points lower than where they were sold Wednesday. Bonds from an interdealer trade of New York 5s of 2026 went at 5.38%, four basis points lower than where they traded Wednesday. A dealer sold to a customer Illinois 5.1s of 2033 at 6.46%, down two basis points from where they traded Wednesday. Bonds from an interdealer trade of insured Miami-Dade County 5s of 2038 yielded 5.65%, down one basis point from where they were sold Wednesday.
"There was quite a bit of activity out there," a trader in Los Angeles said. "The new issues were priced pretty aggressively, and there was pretty solid demand out there. Overall, just another firmer day."
The Treasury market showed gains yesterday. The yield on the benchmark 10-year Treasury note, which opened at 3.71%, finished at 3.68%. The yield on the two-year note was quoted near the end of the session at 1.26% after opening at 1.34%. The yield on the 30-year bond, which opened at 4.19%, was quoted near the end of the session at 4.18%.
In the new-issue market yesterday, Wachovia Bank NA sold $887 million of Puerto Rico tax and revenue anticipation notes backed by a letter of credit provided by Bank of Nova Scotia and five other banks. The Government Development Bank for Puerto Rico, the commonwealth's financing arm, originally planned to sell $1 billion of short-term debt, but officials could not find enough interest on notes backed by one liquidity provider in the syndicate, KBC Bank. The commonwealth sold only $27 million of $150 million of KBC-backed paper, thus decreasing the overall size of the deal to $887 million from $1 billion, according to Luis Alfaro, GDB's executive vice president and financing director.
"Basically, the majority of the accounts, they didn't have approval for that credit," Alfaro said.
Conversely, there was strong interest in Trans backed by Nova Scotia, BNP Paribas, and Banco Bilbao Vizcaya Argentaria, as those portions were about three times oversubscribed, Alfaro said. The other liquidity provider was Banco Popular.
Meantime, Goldman, Sachs & Co. priced $350 million of power system revenue bonds for the Los Angeles Department of Water and Power. The bonds mature from 2011 through 2028, with a term bond in 2032. Yields range from 2.80% with a 4% coupon in 2011 to 5.40% with a 5.25% coupon in 2032. The bonds, which are callable at par in 2018, are rated Aa3 by Moody's Investors Service and AA-minus by Standard & Poor's and Fitch Ratings.
Also, the Los Angeles DWP came to market with $200 million of revenue bonds, priced by Siebert, Brandford, Shank & Co. These bonds mature in 2038, yielding 5.53% with a 5.25% coupon, and are callable at par in 2018.
JPMorgan priced $350 million of toll highway senior priority revenue bonds for the Illinois State Toll Highway Authority. The bonds mature in 2033, yielding 5.70% with a 5.5% coupon. The bonds, which are callable at par in 2018, are rated Aa3 by Moody's and AA-minus by Standard & Poor's and Fitch.
Morgan Stanley priced $192.8 million of revenue and revenue refunding bonds for the Michigan State Building Authority. The bonds mature from 2010 through 2018, with term bonds in 2020 and 2038. Yields range from 3.00% priced at par in 2010 to 6.25% priced at par in 2038. The bonds, which are callable at par in 2018, are rated A1 by Moody's and A-plus by Standard & Poor's and Fitch.
JPMorgan priced $69.2 million of single-family mortgage revenue bonds for the Indiana Housing and Community Development Authority in two series. Bonds from the $2 million series A-1 mature in 2010 and 2011, yielding 3.65% and 3.95%, respectively, both priced at par. Bonds from the $67.2 million series A-3 mature from 2011 through 2018, with term bonds in 2023, 2029, 2033, and 2040. Yields range from 3.95% in 2011 to 6.45% in 2040, all priced at par. These bonds are callable at par in 2018, and are rated triple-A by Moody's and Fitch.
In economic data released yesterday, initial jobless claims for the week ended Nov. 1 came in at 481,000, after a revised 485,000 the previous week. Economists polled by Thomson Reuters had predicted 480,000 initial jobless claims.
Continuing jobless claims came in at 3.843 million, after a revised 3.721 million the previous week. Economists polled by Thomson had predicted 3.740 million continuing jobless claims.
Third-quarter preliminary non-farm productivity came in at an annual rate of 1.1% after a revised 3.6% the previous reading. Economists polled by Thomson had predicted a 0.8% annual rate.
Third-quarter preliminary unit labor costs rose 3.6%, after a revised 0.1% dip the previous reading. Economists polled by Thomson had predicted a 2.8% rise.
Today, the October non-farm payrolls report will be released. Economists polled by Thomson are predicting that 200,000 jobs were lost in the month.
Michelle Kaske contributed to this column.
