Munis Firmer; Long End Shows Strength

The municipal market showed firmness yesterday with yields one or two basis points lower overall and greater strength further out along the curve.

The market absorbed heavy issuance, including several deals totaling near $1.5 billion from the Northeast.

“A lot of people are accumulating bonds for next year, so the market is well bid,” a trader in New York said. “From the close Friday, we’ve probably seen, especially in the longer end, a solid five basis-point improvement.”

Traders reported more interest at the long end amid less supply in that range. High demand was attributed to seasonal December reinvestment cash and the need to put that money to work.

Traders said it is also due to the fact that supply of traditional munis has fallen as issuance of taxable Build America Bonds remains robust. From January through November, issuance of taxable debt increased 291.5% compared with 2008, while tax-exempt issuance declined 7.8% for the same period, according to Thomson Reuters.

“At some point here I wouldn’t be surprised to see the market fade a bit and then pick up again early next year. But we’re not there yet — we’re still full go at the moment,” a trader in Chicago said.

He added that new issuance is being mopped up by the market, whereas the secondary market was lethargic. “If you’re not involved in a new issue, it seems like the Friday before vacation,” the trader said.

Another trader in Chicago added: “We’ve seen a lot of flow both ways — a lot of bid-wanteds, which is typical this time of year, but on the other side of the coin we’re also seeing good demand.”

In Treasuries, yields moved up. The benchmark 10-year note closed the day at 3.43%, five basis points higher than the opening yield of 3.38%.

The yield on the two-year note was 0.75%, up three points from the 0.72% opening yield, while the 30-year bond closed three basis points up at 4.41%, up from 4.38% at the open.

In economic data yesterday, the Commerce Department said wholesale inventories unexpectedly increased 0.3% in October, the first gain in 13 months. Forecasters had been expecting inventories to be cut by 0.5%, according to data from Thomson Reuters.

The same report said wholesale sales improved 1.2%, beating estimates for a 0.7% gain and marking the seventh straight advance.

“A rebuild in inventories is GDP positive, which is bond market negative, [so the Treasury market] actually edged a little bit higher in the wake of the data,” said Ian Lyngen, senior government bond strategist at CRT Capital Group.

“The big story of inventory rebuild is relatively important, but from a more immediate trading perspective, it’s not data that moves the market a lot,” he said.

In the new-issue market, Bank of America Merrill Lynch priced $603.3 million of Maryland Series C 2009 general obligation bonds.

Bonds were priced to yield 1.80% with a 2.00% coupon in 2015 to 2.96% with a 5.00% in 2020. The bonds are triple-A rated from all three rating agencies.

JPMorgan priced $501 million of Series 2009E District of Columbia income-tax secured revenue bonds. These are direct-pay BABs.

The bonds were priced at par to yield from 4.343% in 2018, or 2.82% after the 35% federal subsidy to 5.093% in 2024 or 3.31% after the subsidy. A 2029 maturity was not reoffered. A 2034 maturity totaling $300 million was priced at par to yield 5.591%.

The bonds were priced to yield between 95 and 170 basis points over comparable Treasury yields and contain a make-whole call at Treasuries plus 20 basis points. The credit is rated Aa2 by Moody’s Investors Service, AAA from Standard & Poor’s, and AA by Fitch Ratings.

Morgan Stanley priced $375 million of Pennsylvania Turnpike Commission revenue bonds. The Series 2009B bonds were priced to yield from 1.91% with a 3.00% coupon in 2014 to 3.98% with a 5.00% coupon in 2025.

The issue is rated Aa3 by Moody’s and A-plus from both Standard & Poor’s and Fitch.

Also in the new-issue market, Citi late Tuesday priced $900 million of New York City GOs for institutions after a three-day retail period, which also ended Tuesday. Demand from individual investors was strong with $480 million of orders being placed during the retail order period.

The tax-exempt bonds are slated to mature serially from 2010 to 2028, and are rated Aa3 by Moody’s, AA by Standard & Poor’s, and AA-minus by Fitch.

The bonds have two series: $838 million of Series E bonds priced to yield from 3.00% in 2012 to 5.00% in 2028; and a $62 million Series F priced to yield 2.00% in 2012 to 5.00% in 2017. The 2010 and 2011 maturities were subject to a sealed bid.

Morgan Stanley priced and repriced $88 million of Wichita Series X 2009 hospital facilities refunding revenue bonds. At the repricing, yields were lowered between five and 10 basis points, depending upon the maturity.

The final scale comprised yields from 1.92% in 2011 to 4.15% in 2018. A $23 million portion of a 2024 split maturity was priced as 5.25s to yield 4.95% and a $20 million portion of that maturity was priced as 4.75s to yield 4.95%. A 2010 maturity totaling $4.25 million was subject to a sealed bid.

Standard & Poor’s and Fitch both rate the bonds A-plus.

Yesterday’s Municipal Market Data triple-A scale yielded 2.79% in 10 years and 3.60% in 20 years, following levels of 2.73% and 3.61% on Monday. The scale yielded 4.07% in 30 years yesterday, after Tuesday’s level of 4.08%.

Nicholas Chesla contributed to this ­column.

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