With a large calendar ahead this week in the primary market, tax-exempts were mostly unchanged yesterday, with a slightly weaker tone in mostly light activity.
"Dealers are kind of hesitant to sell," a trader in Los Angeles said. "We've made counters on several things, and we've been close, but dealers are largely just sticking to their prices. They won't bend. It's a big new-issue calendar this week and next, and I think today is just a regrouping day, so to speak. The market is basically flat, with no real excitement."
In the new-issue market yesterday, King County, Wash., competitively sold $300 million of limited-tax general obligation bonds to Barclays Capital with a true interest cost of 5.11%. The bonds mature from 2014 through 2030, with term bonds in 2033, 2036, and 2039. Yields range from 2.56% with a 5% coupon in 2014 to 5.30% with a 5.25% coupon in 2039. The bonds, which are callable at par in 2019, are rated Aa1 by Moody's Investors Service, AAA by Standard & Poor's, and AA-plus by Fitch Ratings.
Traders said tax-exempt yields in the secondary market were flat to higher by one or two basis points.
"We're picking up virtually right where we left off last week," a trader in New York said. "There's some trading going on, though not a ton, there's not a lot of movement to the scale, though there is a noticeable weaker tone. But overall, I'd call it virtually unchanged, with maybe a basis point or two of weakness in certain maturities, if that."
The Treasury market showed losses yesterday. The yield on the benchmark 10-year note, which opened at 2.89%, was quoted near the end of the session at 2.96%. The yield on the two-year note was quoted near the end of the session at 1.00% after opening at 0.96%. The yield on the 30-year bond, which opened at 3.67%, was quoted near the end of the session at 3.77%.
As of Friday's close, the triple-A scale in 10 years was at 115.6% of comparable Treasuries, according to Municipal Market Data. Additionally, 30-year munis were 133.3% of comparable Treasuries. As of the close Friday, 30-year tax-exempt AAA-rated general obligation bonds were at 147.0% of the comparable London Interbank Offered Rate.
Wisconsin is expected to thunder into the market Thursday a week early, with up to $1.5 billion of state-appropriated securities that will refund outstanding 2002 tobacco bonds and deliver a substantial amount of paper to the primary market, leading an estimated $6.83 billion in total new volume expected to be priced this week, according to Thomson Reuters.
The state's financing includes $1 billion of general fund annual appropriation bonds and $495 million of general fund annual appropriation bond anticipation notes.
The deal was originally planned for pricing on March 24 with a two-day retail order period to have begun on Friday, but state officials announced their decision last Friday to move the deal up as to avoid an overcrowded market expected next week.
Book-runner Barclays will take retail orders today and tomorrow, and price the deal for institutions on Thursday. The bonds are rated AA-minus by Standard & Poor's, A-plus by Fitch, and A1 by Moody's, while the notes are rated SP-1-plus, F1, and MIG-1, respectively.
In a weekly report, George Friedlander, managing director and fixed-income strategist at Citi, wrote that "discussions with rating agencies, issuers, and other market participants suggest to us that the muni new-issue calendar is likely to remain heavy throughout 2009, despite the weak economy, tight budgets, and potential substitution of Federal grant money for a portion of some potential projects."
"Toward that end, we now expect new issue supply to exceed that done in [2008]," he wrote. "It is important to note that in 2008, issuance plummeted during the last four months of the year, when the dislocations in the muni market became the most severe. Volume in the first nine months of the year was roughly $301 billion, a $38 billion monthly clip."
"For the last four moths, the rate was only $22.75 billion. Given that issuance so far this year is running only very modestly behind the 2008 year-to-date pace, even a reasonable issuance rate later in the year would probably lead to a total exceeding the $391 billion sold last year," Friedlander wrote. "Furthermore, as in the first two months of 2009, issuance during the remainder of the year is likely to be skewed toward fixed-rate rather than variable-rate issuance, given the severe shortage of liquidity providers and bond insurance capacity in the muni market right now. We do not expect liquidity providers to return en masse any time this year, despite the sharply higher fees available in this activity."
In economic data released yesterday, industrial production in the nation was down 1.4% in February while capacity utilization fell to 70.9. The drop in production level followed a 1.9% decrease the previous month, while January capacity use was revised down to 71.9. Thomson Reuters had forecast a 1.2% decrease for production, and a 71.1% level for capacity utilization.
The Empire State Manufacturing Survey "indicates that conditions for New York manufacturers deteriorated significantly in March," the Federal Reserve Bank of New York reported yesterday, as the general business conditions index widened to negative 38.23 in March from negative 34.65 in February. Economists surveyed by Thomson Reuters had expected the index would be negative 32.00.
