Munis Flat to Firmer; 10-Years Still Sliding

Municipal 10-year yields Monday hit yet another historic low as the market was flat to slightly firmer amid fairly light secondary trading, lagging behind a Treasury rally that dropped 10-year Treasury yields to their lowest level since March 2009.

"Treasuries got a bit of a bump today, particularly 10 years and out, but we didn't follow it so much," a Los Angeles trader said. "We'd been more tied to the Treasury market recently, but today investors were mostly on the sidelines. That said, we probably picked up another basis point or two."

The trader said the market was flat on the short end, but firming up beyond 10 or so years.

The Municipal Market Data triple-A scale yielded a record-low 2.39% in 10 years and 3.50% in 20 years Monday, following levels of 2.41% and 3.52% Friday. The scale yielded 3.84% in 30 years Monday, following 3.86% on Friday.

Friday's triple-A muni scale in 10 years was at 89.9% of comparable Treasuries and 30-year munis were at 99.7%, according to MMD, while 30-year tax-exempt triple-A general obligation bonds were at 111.9% of the comparable London Interbank Offered Rate.

The Treasury market showed gains Monday.

The benchmark 10-year note was quoted near the end of the session at a 16-month low of 2.58% after opening at 2.67%.

The 30-year bond was quoted near the end of the session at 3.73% after opening at 3.86%. The two-year note was quoted near the end of the session at 0.50% after opening at 0.53%.

The municipal market is expected to see a mixed bag of state general obligation and revenue financings this week, including two taxable Build America Bond issues for transportation projects, as an estimated $6.86 billion of new long-term volume is slated for pricing amid strong demand, according to Ipreo LLC and The Bond Buyer.

The projected volume is a slight improvement from the revised $5.68 billion that was priced last week and the $3.16 billion priced the week of Aug. 2, according to Thomson Reuters.

This week's note market, by comparison, will be dominated by a $2.25 billion sale of New Jersey tax and revenue anticipation notes planned for competitive pricing on Thursday.

In addition, Massachusetts will issue a three-pronged GO revenue anticipation note deal consisting of two series of $425 million each and one $350 million series. Note deals are not included in the weekly volume.

The long-term activity will kick off in the Northeast. Massachusetts will issue an additional $358 million of GO bonds Wednesday and the Pennsylvania Turnpike Commission is expected to sell $600 million of toll road revenue debt for infrastructure needs.

The Turnpike deal will be priced by Bank of America Merrill Lynch. According to commission officials, the entire offering is likely to be issued as taxable BABs, but market conditions may lead to the inclusion of some tax-exempt bonds.

Since the infrastructure projects are extremely long term, and the commission has the ability to issue 40-year bonds, the BAB portion could mature out to 2050. That's much longer than its 2009 BABs, which matured in 2037 and 2039.

This week in the Southeast, North Carolina will competitively sell $494.6 million of GO refunding bonds on Tuesday.

The bonds have natural triple-A ratings from all three major rating agencies, and the deal is structured to mature from 2011 to 2019.

In addition, the Kentucky Asset Liability Commission will sell $468.1 million of traditional taxable bonds in a negotiated deal planned for pricing Wednesday by JPMorgan one day after the firm takes indications of interest.

The Kentucky bonds are rated Aa2 by Moody's Investors Service, A-plus by Standard & Poor's, and AA-minus by Fitch Ratings.

In the new-issue market Monday, Morgan Stanley priced $232.7 million of state facilities refunding bonds for Ohio in three series.

Bonds from the $130.4 million Series C mature from 2012 through 2024, with yields ranging from 0.51% with a 2% coupon in 2012 to 3.38% with a 5% coupon in 2024.

Bonds from the $88.1 million Series A mature from 2012 through 2024, with yields ranging from 0.51% with a 2% coupon in 2012 to 3.38% with a 3.35% coupon in 2024.

Bonds from the $14.3 million Series D mature from 2013 through 2024. None of the bonds were formally re-offered.

The bonds, which are callable at par in 2020, are rated Aa2 by Moody's and AA by both Standard & Poor's and Fitch.

Also on Monday, JPMorgan priced $126.9 million of revenue and refunding bonds for the New Jersey Health Care Facilities Financing Authority.

The bonds mature from 2011 through 2020, with term bonds in 2025 and 2031. Yields range from 1.00% with a 2% coupon in 2011 to 4.80% with a 5% coupon in 2031.

The bonds are callable at par in 2020, except bonds maturing in 2020, which contain no optional redemption.

The underlying credit is rated A2 by Moody's and A-minus by Standard & Poor's.

In economic data released Monday, the Empire State Manufacturing Survey showed "conditions improved modestly in August for New York manufacturers," the Federal Reserve Bank of New York reported, as the general business conditions index climbed to 7.10 in the month from 5.08 in July.

Economists surveyed by Thomson Reuters had expected the index would be 8.00.

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