Munis Slightly Firmer, Following Treasuries

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The municipal market was slightly firmer yesterday, following Treasuries.

“I would say overall, you’re probably getting one to three basis points, just because of the way [the Treasury market has] rallied, and if it continues, we could get a little more,” a trader in New York said. “We cheapened up over the past few days, just with the sell-off, but now a lot of people have a bunch of inventory. Then, of course, the downgrade on [Financial Guaranty Insurance Co.] is not helping. Certainly FGIC’s trading like it’s a single-A piece of paper right now, that’s for sure.”

Trades reported by the Municipal Securities Rulemaking Board yesterday showed gains. A dealer bought from a customer FGIC-insured Miami-Dade County 5s of 2033 at 5.18%, down two basis points from where they were sold Wednesday. Bonds from an interdealer trade of California 5s of 2037 yielded 4.98%, three basis points lower than where they traded Wednesday. A dealer sold to a customer Texas Transportation Commission 5s of 2029 at 4.46%, down two basis points from where they were sold Wednesday. A dealer sold to a customer New York City Municipal Water Finance Authority 5s of 2038 at 4.50%, three basis points lower than where they traded Wednesday.

The Treasury market showed mild gains yesterday. The yield on the benchmark 10-year Treasury note, which opened at 3.65%, was recently quoted at 3.64%, The yield on the two-year note was quoted recently at 2.16%, after opening at 2.17%.

In economic data released yesterday, initial jobless claims for the week ended Jan. 26 came in at 375,000, after a revised 306,000 the previous week. Additionally, continuing jobless claims for the week ended Jan. 19 came in at 2.716 million, after a revised 2.669 million the prior week. Economists polled by IFR Markets had predicted 318,000 initial jobless claims and 2.675 million continuing jobless claims.

Personal income climbed 0.5% in December, after a 0.4% rise the previous month. Also, personal consumption rose 0.2% in December, after a revised 1.0% uptick the prior month. Economists polled by IFR Markets had predicted a 0.4% rise in personal income and a 0.1% climb in personal consumption.

The core personal consumption expenditures deflator was at 2.2% in December, after a 2.2% reading the previous month. Economists polled by IFR had predicted the PCE deflator would be at 2.2% year-over-year.

The Chicago Purchasing Managers’ Business Barometer fell to 51.6 in January from 56.4 in December. Economists polled by IFR Markets predicted a 52.0 reading for the indicator.

The U.S. fourth quarter employment cost index rose 0.8% for overall compensation costs to civilian workers, after an 0.8% gain the previous period. Economists polled by IFR predicted a 0.8% rise in the index.

In the new-issue market yesterday, the triple-A rated Virginia Housing Development Authority competitively sold $150 million of commonwealth mortgage bonds to Banc of America Securities LLC, with a true interest cost of 4.94%. The bonds mature from 2009 through 2021, with term bonds in 2026 and 2035. Yields range from 2.50% in 2009 to 4.75% in 2021, all priced at par. Bonds maturing from 2012 through 2017, and in 2026 and 2035, were not formally re-offered. The bonds, which are subject to the alternative minimum tax, are callable at par in 2017.

Morgan Stanley priced $127.3 million of clean water revenue bonds for Wisconsin in two series. The larger series, worth $100 million, matures from 2009 through 2028, with yields ranging from 2.00% with a 4% coupon in 2009 to 4.47% with a 5% coupon in 2028. The smaller series, worth $27.3 million of refunding bonds, matures from 2016 through 2018, yielding 3.30%, 3.42%, and 3.55%, respectively, all priced at par. The bonds, which are all callable at par in 2018, are rated Aa1 by Moody’s Investors Service, and AA-plus by both Standard & Poor’s and Fitch Ratings.

The Alabama Water Pollution Control Authority competitively sold $44.2 million of revolving fund loan refunding bonds to Morgan Stanley, with a net interest cost of 3.57%. The bonds mature from 2009 through 2019, with yields ranging from 2.00% with a 3% coupon in 2009 to 3.74% with a 4% coupon in 2019. The bonds, which are callable at par in 2016, are rated A by Standard & Poor’s.

In economic data today, the January non-farm payrolls report will be released. In addition to non-farm payrolls, the January Institute for Supply Management business activity composite index will be released, as will the final January University of Michigan consumer sentiment index.

Economists polled by IFR Markets are predicting 58,000 new jobs were created in January. They are also predicting a 47.0 reading in the ISM index, and a 79.0 consumer sentiment reading.

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