Munis Slightly Firmer After Slow Trading

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The municipal market was slightly firmer Monday.

"There wasn't a whole lot of trading going on, but there was absolutely a firmer tone," a trader in Los Angeles said. "Some parts of the curve might have even been unchanged, but overall, there's firmness in the market, mostly to the tune of one or two basis points. I've even seen it three better in some trades on the long end. So, it's quiet, but we're improved on the day."

Trades reported by the Municipal Securities Rulemaking Board yesterday showed gains. Bonds from an interdealer trade of New York State Environmental FacilitiesCorp. 5s of 2037 yielded 4.59%, down two basis points from where they traded Friday. Bonds from an interdealer trade of Arizona Department of Transportation 5s of 2030 yielded 4.50%, down three basis points from where they traded Friday. Bonds from an interdealer trade of insured California Statewide Communities Development Authority 5.5s of 2041 yielded 5.11%, one basis point lower than where they were sold Friday. A dealer sold to a customer insured Alaska Housing FinanceCorp. 5s of 2029 at 4.7%, two basis points lower than where they were sold Friday.

"We're a little bit better," a trader in New York said. "We've seen some Treasury gains, and we're seeing some follow-through in the muni market. It's maybe a basis point or two better."

The Treasury market, however, showed some losses yesterday. The yield on the benchmark 10-year Treasury note, which opened at 3.77%, was quoted late in the day at 3.79%. The yield on the two-year note was quoted at 2.30% after opening at 2.24%.

The economic calendar was light yesterday. However, this week, a slate of economic data will be released.

Import prices for April will be released today, in addition to retail sales for April, and March business inventories and sales. Tomorrow, the consumer price index for April will be released. This will be followed Thursday by May's Empire State manufacturing index, initial jobless claims for the week ended May 10, continuing jobless claims for the week ended May 3, and April industrial production and capacity utilization. On Friday, April housing starts and building permits will be released, alongside the preliminary May University of Michigan consumer sentiment index.

Economists polled by IFR Markets are predicting a 1.7% rise in import prices, a 0.1% dip in retail sales, a 0.3% gain in retail sales excluding autos, a 0.5% uptick in business inventories, a 1.0% increase in business sales, 0.3% growth in CPI, a 0.2% rise to the CPI core, a negative 10.00 level for the Empire State manufacturing index, 370,000 initial jobless claims, 3.035 million continuing jobless claims, a 0.3% decline in industrial production, 80.1% capacity utilization, 940,000 housing starts, 915,000 building permits, and a 62.5 level for the Michigan sentiment index.

In a weekly report, George Friedlander, managing director and fixed-income strategist at Citi, wrote that "many participants in the muni market have been functioning under the assumption that the recent rally would finally end when the calendar got heavier."

"Well, the calendar wasn't huge [last] week, but it was diverse," he wrote. "There were at least 13 negotiated offerings of $100 million or more in size. Virtually all of these deals got done with relative ease, often with yields below the initial price talk."

Friedlander cited three key reasons for this.

"First, the Treasury market rallied sharply on Thursday on the back of a positive result on the 30-year refunding auction, pulling munis along just as final prices on deals were being set," he wrote. "Second, the demand side of the muni market continued to demonstrate breadth and depth. Third, while there were a large number of moderately large deals, there weren't any 'mega' deals, and the calendar for [this] week appears to be quite manageable."

Except for two large school financings in Nevada and Florida to hold investors' attention this week, there will be a lull in primary market activity as new-issue volume declines by just over $1 billion from last week's total, continuing May's slow start. New issuance will decline for the second week in a row, as municipalities are expected to sell an estimated $5.46 billion this week versus a revised $6.54 billion last week, according to Thomson Reuters.

The drop in volume is more noticeable in the negotiated market, where there is $3.98 billion expected compared with a revised $5.07 billion last week. There are $1.47 billion in competitive deals expected compared with last week's revised $1.46 billion.

The Clark County, Nev., School District will come to market with the week's largest scheduled transaction in the primary market, $675 million of general obligation debt. The bonds will be sold Thursday competitively. The credit is rated Aa2 by Moody's Investors Service, and AA by Standard & Poor's and Fitch Ratings.

The Miami-Dade County School Board will sell $537.6 million of certificates of participation tomorrow, which is the single largest COP deal from a Florida public school district. The appropriation-backed issue is being priced by senior manager Goldman, Sachs & Co. The bonds, which will be insured by Assured Guaranty Corp., are structured to mature serially from 2014 to 2028 with a term bond maturing in 2033. The debt has underlying ratings of A3 from Moody's and A from Standard & Poor's.

In the new-issue market yesterday, Wachovia Bank NA priced $184.1 million of GO refunding bonds for Charlotte, N.C. The bonds mature from 2009 through 2023, with yields ranging from 2.05% with a 5% coupon in 2009 to 4.11% with a 4% coupon in 2023. The bonds are callable at par in 2018, and are rated triple-A by all three major rating agencies.

 

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