The municipal market was firmer in light trading yesterday, as it closed out the last full trading day of the year.
Traders said the market was up about two basis points.
"The tone is firmer, you might even say it's up a tick or two, but there's not really much going on to base it on," a trader in Chicago said. "People are looking for the same high quality paper they've been looking for."
With an early close today for New Year's Eve and the market closed tomorrow, traders said many market participants were getting in their last moves of the week.
"This is really the last day to get business done," a trader in New York said.
Trades reported to the Municipal Securities Rulemaking Board were firmer. A dealer sold to a customer Iowa Finance Authority 6s of 2027 at 4.83, down four basis points. Bonds from an interdealer trade of Metropolitan Transportation Authority 5.125s of 2024 yielded 5.76%, down four basis points from yesterday. Bonds from an interdealer trade of Bay Area Toll Authority 5s of 2031 traded at 5.60%, down four basis points from yesterday.
The Treasury market was also firmer. The yield on the benchmark 10-year Treasury note, which opened at 2.10%, closed at 2.08%. The yield on the two-year note closed at 0.73%, after opening at 0.78%. And the yield on the 30-year bond, which opened at 2.63%, closed at 2.57%.
New-issue activity was light yesterday. Banc of America Securities LLC priced $17 million of daily variable-rate pollution control revenue refunding bonds for Forsyth, Mont., subject to the alternative minimum tax.
In the competitive market, the Harris County, Tex., Municipal Utility District No. 391 sold $3.7 million in unlimited tax bonds to First Southwest Co. at a net interest cost of 6.085%. The bonds mature 2010 through 2020, with term bonds in 2024, 2029, and 2034. Yields range from 3.40% with a 6.50% coupon in 2010 to 6.10% priced at par in 2034. The bonds, which have an underlying rating of BBB-minus from Standard & Poor's, are insured by Assured Guaranty Corp.
In addition, the village of Airmont, N.Y., sold to Roosevelt & Cross $1.47 million of public improvement serial bonds at a net interest cost of 4.1521%. The bonds mature from 2010 through 2022, with coupons ranging from 3.50% to 4.375%. None of the bonds - insured by Assured Guaranty - were reoffered.
In competitive note sales, Tompkins County, N.Y., sold to Roosevelt & Cross $11.1 million of bond anticipation notes at a net interest cost of 1.1489%. The notes have a coupon of 1.75% and were not reoffered.
Hammonton, N.J., competitively sold $9 million of bond anticipation and water and sewer utility notes to Banc of America Securities at a net interest cost of 3%.
In economic data released today, the consumer confidence index fell to an all-time low of 38.0, below the 45.0 expected by economists polled by Thomson Reuters. The index fell from a downwardly revised 44.7 in November, initially reported as 44.9.
In addition, the Chicago purchasing managers index rose to 34.1 in December from 33.8 in November. That beat the 33.0 predicted by economists polled by Thomson.
Robert B. MacIntosh, chief economist and muni portfolio manager for Eaton Vance Corp., said the consumer confidence index has little correlation to actual consumer behavior.
"I don't think it has anything to do with anything," he said. "It makes for good headlines, but I don't think it means what spending is going to take place."
MacIntosh expects a 5% contraction in gross domestic product for both the fourth quarter of 2008 and the first quarter of 2009. He foresees a decline of roughly 3.5% in GDP for next year.
MacIntosh said he is "very encouraged" by the downward trend in yields the last week and a half or so. The Bond Buyer municipal bond index hit 98 Tuesday, up from 96-29 a week ago and 96-02 a month ago.
The buying represents people "realizing how ridiculously cheap munis are, especially given the solid credit quality that's out there," MacIntosh said.
MacIntosh said even though many states are grappling with burgeoning budget gaps, defaults are unlikely. At least 44 states face budget gaps, according to the Center on Budget and Policy Priorities. The CBPP estimates those states' deficits total 13.6% of their budgets for fiscal 2009.
"You're not going to have municipalities defaulting," he said. "You're going to have downgrades, but we're not talking defaults."
Yields remain attractive, he said. A lot of cash is sitting in safe havens, he said, and it is a matter of "gumption" whether managers will deploy it into munis for what he calls great return potential and prudent risk.