Tax-exempt yields were mostly unchanged yesterday as participants focused their attention on the primary market, and Federal Reserve policy makers again held the federal funds rate target unchanged at its 0% to 0.25% range."It's fairly quiet," a trader in New York said. "There's not a whole lot trading, and there's not a whole lot of movement either. I think we're fairly flat. I'm not really feeling the market being pulled in either direction. People are kind of focusing on the new issues, and there's not a ton going on in the secondary, but overall, I'd say we're just pretty flat."
In the new-issue market yesterday, JPMorgan and Ramirez & Co. priced $808.6 million of state personal income tax revenue bonds for the Dormitory Authority of the State of New York in three series. Bonds from the $584.1 million Series A mature from 2010 through 2029, with term bonds in 2034 and 2039. Yields range from 1.34% with a 5% coupon in 2011 to 5.19% with a 5% coupon in 2039. Bonds maturing in 2010 were decided via sealed bid. The bonds are callable at par in 2019.
Bonds from the $214.3 million Series B mature from 2010 through 2031, with yields ranging from 1.34% with a 3% coupon in 2011 to 5.05% with a 4.75% coupon in 2031. Bonds maturing in 2010 were decided via sealed bid. The bonds are callable at par in 2019. Bonds from the $10.1 million taxable Series C mature in 2010, and were decided via sealed bid. The bonds are not callable. The credit is rated AAA by Standard & Poor's and AA-minus by Fitch Ratings.
The Treasury market showed some losses yesterday. The yield on the benchmark 10-year note, which opened at 3.62%, finished at 3.70%. The yield on the two-year note finished at 1.22% after opening at 1.16%. The yield on the 30-year bond, which opened at 4.36%, finished at 4.45%.
The Federal Open Market Committee yesterday opted to hold the federal funds rate target unchanged at its range of 0.00% to 0.25%, and noted that "economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period of time."
Janney Montgomery Scott LLC fixed-income strategist Guy LeBas wrote in a note to clients following the Fed decision that "we got what we expected: nothing."
"Despite talk of changes to the Fed's quantitative easing regime, the FOMC reported little in the way of adjustments, either in the amount or composition of bond purchases still to come," LeBas wrote. "In the words of William McChesney Martin, the Fed's job is to 'take the punch bowl away just when the party gets interesting.' Well, the punch bowl's definitely out there and some might argue the liquid's overflowing, but the party is far from interesting yet. In other words, despite the increasingly popular talk of green shoots, we see the growing recoveryphoria as a recipe for disappointment. The truth is that fundamental indicators, with one or two exceptions, continue to display a disappointing lack of improvement, which is setting up the markets for what may perhaps be a rather slap back into the real world."
Elsewhere in the new-issue market yesterday, Morgan Stanley priced $209.2 million of taxable Series C Build America Bonds for Kentucky. The bonds mature in 2023 and 2029, yielding 6.16% and 6.57%, respectively, both priced at par, or 4.01% and 4.27%, respectively, after the 35% federal subsidy. The bonds were priced to yield 250 and 215 basis points over the comparable U.S. Treasury yields, respectively.
The bonds are not callable, but contain a make-whole redemption at Treasuries plus 40 basis points for the 2023 maturity and Treasuries plus 35 basis points for the 2029 maturity. The credit is rated Aa3 by Moody's Investors Service, A-plus by Standard & Poor's, and AA-minus by Fitch.
Kentucky also came to market with $183.2 million of tax-exempt and taxable bonds, also priced by Morgan Stanley. Bonds from the $138.3 million tax-exempt Series A mature from 2010 through 2020, with yields ranging from 1.62% with a 4% coupon in 2011 to 4.25% with a 4.2% coupon in 2020. Bonds maturing in 2010 were not formally re-offered. The bonds are not callable.
Bonds from the taxable $44.9 million series mature from 2010 through 2013, with yields ranging from 2.00% in 2010 to 4.00% in 2013, all priced at par. The bonds are also not callable, and were priced to yield between 150 and 165 basis points over comparable Treasury yields.
Morgan Stanley also priced $275 million of education loan revenue bonds for the Massachusetts Educational Financing Authority. The bonds mature from 2012 through 2020, with term bonds in 2023 and 2028. Yields range from 3.40% priced at par in 2012 to 6.00% priced at par in 2028. The bonds, which are callable at par in 2020, are rated AA by Standard & Poor's and A by Fitch.
As of Tuesday's close, the triple-A muni scale in 10 years was at 89.3% of comparable Treasuries, according to Municipal Market Data. Additionally, 30-year munis were 106.8% of comparable Treasuries. Also, as of the close Tuesday, 30-year tax-exempt triple-A general obligation bonds were at 111.6% of the comparable London Interbank Offered Rate.
In economic data released yesterday, durable goods orders rose 1.8% in May after a 1.8% climb in April. Economists polled by Thomson Reuters had predicted a 0.7% drop. Excluding transportation, durable goods orders rose 1.1% in May, after a 0.4% increase the previous month. Economists polled by Thomson had predicted a 0.4% decline.
Sales of new single-family homes decreased 0.6% to a 342,000 seasonally adjusted annual rate in May. The May figure came after a downwardly revised 344,000 rate in April. Thomson Reuters' poll of economists had predicted a 360,000 sales level for May.