The municipal market was unchanged yesterday with a firmer tone as a Lower Colorado River Authority $425.9 million refunding priced. Traders said tax-exempt yields were flat to firmer by one basis point in spots.
“It’s pretty flat,” a trader in New York said. “There’s decent activity out there, and maybe a slightly firmer tone, but overall I’d say we’re fairly unchanged.”
“There could be slight scattered gains here and there, maybe a basis point or so, but we’re largely unchanged,” a trader in Los Angeles said. “It feels a bit firmer, and there is some activity, but the secondary is taking a backseat to the primary this week.”
In the new-issue market yesterday, Barclays Capital priced $425.9 million of refunding revenue bonds for the Texas LCRA.
The bonds mature from 2010 through 2020, with yields ranging from 1.17% with a 3% coupon in 2011 to 4.01% with a 5% coupon in 2020. Bonds maturing in 2010 will be decided via sealed bid.
The bonds, which are not callable, are rated A1 by Moody’s Investors Service, A by Standard & Poor’s, and A-plus by Fitch Ratings.
Morgan Stanley priced $366.3 million of water pollution control loan fund revenue bonds for the Ohio Water Development Authority.
The bonds mature from 2010 through 2030, with yields ranging from 0.57% with a 3% coupon in 2011 to 4.04% with 5% coupon in 2030. Bonds maturing in 2010 were not formally re-offered.
The bonds, which are callable at par in 2019, are rated triple-A by Moody’s and Standard & Poor’s.
Morgan Stanley also priced $233.2 million of general receipts bonds for Ohio State University.
The bonds mature from 2010 through 2020, with yields ranging from 0.73% with a 3% coupon in 2011 to 3.44% with a 5% coupon in 2020. Bonds maturing in 2010 were decided via sealed bid.
The bonds, which are callable at par in 2019, are rated Aa2 by Moody’s and AA by Standard & Poor’s.
The Treasury market showed gains yesterday. The yield on the benchmark 10-year note opened at 3.82% and finished at 3.71%. The yield on the two-year note opened at 0.93% and finished at 0.90%. The yield on the 30-year bond finished at 4.62% after opening at 4.73%.
Yesterday’s Municipal Market Data triple-A scale yielded 3.04% in 10 years and 3.76% in 20 years, matching levels of 3.05% and 3.76%, respectively, Monday. The scale yielded 4.13% in 30 years yesterday, matching Monday’s level.
As of Monday’s close, the triple-A muni scale in 10 years was at 80.1% of comparable Treasuries and 30-year munis were 87.5% of comparable Treasuries, according to MMD, while 30-year tax-exempt triple-A general obligation bonds were at 90.8% of the comparable London Interbank Offered Rate.
Elsewhere in the new-issue market yesterday, Bank of America Merrill Lynch priced $198.7 million of airport revenue bonds for North Carolina’s Charlotte Douglas International Airport in two series.
Bonds from the $130.3 million Series A, which is not subject to the alternative minimum tax, mature from 2011 through 2029, with term bonds in 2034 and 2039. Yields range from 0.88% with a 2% coupon in 2011 to 5.00% priced at par in 2039. These bonds are callable at par in 2020.
Bonds from the $68.3 million Series B, which is subject to the AMT, mature from 2010 through 2024, with a term bond in 2028. Yields range from 1.66% with a 3% coupon in 2011 to 5.50% with a 5.375% coupon in 2028. Bonds maturing in 2010 were decided via sealed bid. The bonds are callable at par in 2020. The credit is rated A1 by Moody’s and A-plus by both Standard & Poor’s and Fitch.
California’s Palm Springs Unified School District competitively sold $110 million of general obligation bonds to Citi, with a true interest cost of 4.38%.
The bonds mature from 2010 through 2033, with yields ranging from 0.95% with a 3% coupon in 2012 to 4.57% with a 5% coupon in 2033. Bonds maturing in 2010, 2011, from 2013 through 2016, in 2018, 2025, 2026, and from 2027 through 2031 were not formally re-offered.
The bonds, which are callable at par in 2019, are rated AA-minus by Standard & Poor’s.
In a weekly report, Matt Fabian, managing director at Municipal Market Advisors, wrote that “the municipal market’s recent and likely near-term strength comes at the annoyance of reporters and pundits who would have our market suffer because of admittedly terrible state budget balances.”
“This is unlikely to be the case anytime soon, and was certainly not so last week, when, despite record low nominal yields, relative value at or close to 'rich’-side resistance, a plea for more federal bailout from California, and a looming supply calendar this week, tax-exempt paper generally held its own,” Fabian wrote. “Of course, these same factors also prevented much of a rally, which was the broadest expectation for the first two weeks of the year. There was, however, little institutional selling ahead of the new supply, and credit spreads tightened; this should bode well for performance this week, despite the large calendar.
“Looking farther ahead, we encourage accounts to consider that, because of the ongoing supply/demand imbalance for high grade tax-exempt paper, relative value measures may set new benchmarks for muni richness this year,” he wrote. “The upset would be incremental supply — if extreme outperformance steals new issuance from the BAB product or if the Treasury curve flattens enough to trigger advance refundings — or more credit problems. To this point, the latter has not risen from an anecdotal to a systemic pressure, and credit impairments remain almost the exclusive problem of risky sector issuers like hotels, hospitals, and housing.”