The municipal market was slightly firmer yesterday. Traders said tax-exempt yields were lower by about one or two basis points.
“There are a few bits and pieces trading, a bit more activity than yesterday,” a trader in New York said. “It feels like we’re better by a couple of basis points in spots, maybe unchanged in others. But there’s definitely at least a firmer tone out there.”
“It definitely felt more active out there,” a trader in Los Angeles said. “We’re starting to finally come out of the holiday doldrums we’ve been in the last couple of weeks, and we’ll probably continue to see activity steadily increase heading into next week. We’re doing a little bit better, though, probably about two basis points or so.”
The Treasury market showed some gains yesterday. The yield on the benchmark 10-year note opened at 3.81% and was quoted near the end of the session at 3.76%.
The yield on the two-year note opened at 1.06% and finished at 1.03%. The yield on the 30-year bond finished at 4.60% after opening at 4.65%.
Yesterday’s Municipal Market Data triple-A scale yielded 3.04% in 10 years and 3.75% in 20 years, after levels of 3.04% and 3.77% on Monday. The scale yielded 4.12% in 30 years yesterday following Monday’s level of 4.16%.
As of Monday’s close, the triple-A muni scale in 10 years was at 79.0% of comparable Treasuries and 30-year munis were 89.3% of comparable Treasuries, according to MMD, while 30-year tax-exempt triple-A general obligation bonds were at 92.4% of the comparable London Interbank Offered Rate.
In the new-issue market yesterday, Frederick County, Md., competitively sold $149.8 million of taxable and tax-exempt consolidated public improvement bonds in two series, including $90.1 million of Build America Bonds.
The BABs were sold to Citi with a true interest cost of 3.60%. The bonds mature from 2021 through 2030, with yields ranging from 4.83% with a 5% coupon in 2022, or 3.14% after the 35% federal subsidy, to 5.38% with a 5.5% coupon in 2025, or 3.50% after the 35% federal subsidy.
Bonds maturing in 2021, 2023, and from 2026 through 2030 were not formally re-offered. The bonds are callable at par in 2020.
The county also sold a $59.7 million tax-exempt series to Citi with a TIC of 2.43%.
he bonds mature from 2011 through 2020, with yields ranging from 1.20% with a 4% coupon in 2014 to 2.71% with a 4% coupon in 2018.
Bonds maturing from 2011 through 2013, and in 2019 and 2020. The bonds are not callable.
The bonds are rated Aa2 by Moody’s Investors Service and AA-plus by Standard & Poor’s and Fitch Ratings.
Kenosha County, Wis., competitively sold $20.3 million of refunding GOs to M & I Bank, with a TIC of 2.03%.
The bonds mature from 2011 through 2017, with yields ranging from 0.45% with a 2% coupon in 2011 to 2.65% with a 3% coupon in 2017.
The bonds, which are callable at par in 2017, are rated Aa2 by Moody’s and AA by Standard & Poor’s.
Trades reported by the Municipal Securities Rulemaking Board showed some gains yesterday.
A dealer sold to a customer California 6s of 2039 at 5.65%, one basis point lower than where they traded Monday.
A dealer sold to a customer taxable New York State BABs 6.39s of 2029 at 6.25%, two basis points lower than where they traded Monday.
In a weekly report, Matt Fabian, managing director at Municipal Market Advisors, wrote: “Although yields are likely to rise with the rest of the fixed-income market in 2010, the relative outlook for municipal bonds is bright.”
“This reflects increasing investor demand for safe, tax-exempt income amid an ongoing scarcity of high-grade, tax-exempt product,” Fabian wrote. “Downside risks are several, including excessive supply of tax-exempts in lieu of more Build America Bond issuance — because of the generous BAB subsidy, we are forecasting record municipal borrowing of up to $450 billion in 2010 — and worsening financial balances that will drive downgrades and negative headlines all year.”
“We see the risk of sweeping, safe-sector municipal defaults as low but not zero,” he said. “So long as that remains the case, the municipal yield curve is likely to bear-steepen with Treasuries, although relatively stronger front-end performance should reflect demand from the still-starved tax-exempt money market funds. The real uncertainty in our market revolves around BAB extension and expansion. Should Congress allow BABs to be used to refund outstanding tax-exempt bonds, total issuance could see a tremendous surge, and tax-exempt yields would rally accordingly.”
In economic data released yesterday, new factory orders for manufactured goods gained 1.1% in November, more than double economists’ estimates. Orders excluding transportation rose 1.9%, the largest increase since June.
Orders increased 0.8% in October, revised higher from the 0.6% rise initially reported. Orders excluding transportation were revised to a 1.0% jump from a 0.5% increase.
Economists expected total factory orders to increase 0.5%, according to the median estimate from Thomson Reuters.
Pending home sales plunged 16.0% to a reading of 96.0 in November from a revised 3.9% gain to 114.3 in October. Thomson Reuters’ poll of economists had predicted a 111.8 reading.