The municipal market was unchanged with a slightly firmer tone in quiet trading yesterday, while the first of the week's taxable Build America Bond issues were sold.
Traders said tax-exempt yields were mostly flat following gains last week prompted in part by the sale of several new taxable BAB deals in the new-issue market.
"There's nothing really happening. It's exceptionally quiet," a trader in New York said. "Retail in particular is completely dead right now. There aren't really any deals out there that people are really anticipating either, so it might be a pretty quiet week. We're definitely unchanged for the most part today, but some people are giving up a little something to get deals done."
In some new-issue activity yesterday, Johnson County, Kan., Unified School District No. 229 competitively sold $73 million of taxable general obligation BABs, after Johnson County Unified School District No. 233 last week competitively sold $95 million of BABs. These bonds were sold to Citi, at a true interest cost of 5.11%, after last week's $95 million sale went to Morgan Keegan & Co., at a TIC of 5.37%, or 3.49% including the federal subsidy.
The bonds mature from 2009 through 2018, and from 2024 through 2029, with yields ranging from 3.77% with a 4% coupon in 2015 to 5.85% with a 5.75% coupon in 2029. Bonds maturing from 2009 through 2014, in 2017, and in 2024 were not formally reoffered. The bonds are callable at par in 2019, and are rated Aa1 by Moody's Investors Service and AA by Standard & Poor's.
Investors hungry for more taxable BABs will have another crack at a relatively sizable offering when the Illinois State Toll Highway Authority issues up to $500 million of senior-priority revenue bonds amid an estimated slate of $5.6 billion of total new-issue volume, according to Ipreo LLC and The Bond Buyer.
The lineup compares to a revised $5.4 billion of total volume that the market welcomed last week, according to Thomson Reuters.
This week's Illinois deal is tentatively structured to include $400 million of Series A bonds consisting of taxable BABs with a 35% direct-pay issuer subsidy, and $100 million of Series B tax-exempt bonds.
The deal will be priced by co-senior managers Goldman, Sachs & Co. and Morgan Stanley. Both series will tentatively include a 2034 final maturity. The debt is secured by a senior line on the net revenue of the toll road system. Proceeds will be used to fund the authority's nearly completed, five-year-old $6.3 billion capital program. The senior-lien bonds are rated Aa3 by Moody's and AA-minus by Standard & Poor's and Fitch Ratings.
Also this week, Goldman will price $531.5 million of tax-exempt revenue bonds for the Phoenix Civic Improvement Corp. tomorrow. The credit is rated Aa3 by Moody's and AAA by Standard & Poor's.
Elsewhere in the new-issue market yesterday, Denton County, Tex., competitively sold $104.3 million of permanent improvement bonds to Citi with a TIC of 4.47%. The bonds mature from 2011 through 2031, with a term bond in 2034. Yields range from 1.00% with a 2% coupon in 2011 to 4.70% with a 4.5% coupon in 2034. Bonds maturing in 2022 and from 2029 through 2031 were not formally re-offered. The bonds, which are callable at par in 2018, are rated Aa1 by Moody's and AAA by Standard & Poor's.
Trades reported by the Municipal Securities Rulemaking Board yesterday showed gains. Bonds from an interdealer trade of California BABs, 7.5s of 2034, yielded 7.25%, down three basis points from where they traded Friday. A dealer sold to a customer New Jersey Turnpike Authority BABs, 7.41s of 2040 at 6.55%, three basis points lower than where they were sold Friday. A dealer bought from a customer New York's Metropolitan Transportation Authority BABs, 7.34s of 2039, at 6.74%, down one basis point from where they traded Friday. A dealer sold to a customer New York's Liberty Development Corp. 5.25s of 2035 at 5.77%, down three basis points from where they traded Friday.
The Treasury market showed gains yesterday. The yield on the benchmark 10-year note, which opened at 3.29%, was quoted near the end of the session at 3.17%. The yield on the two-year note was quoted near the end of the session at 0.90% after opening at 0.98%. The yield on the 30-year bond, which opened at 4.27%, was quoted near the end of the session at 4.18%.
As of Friday's close, the triple-A muni scale in 10 years was at 89.1% of comparable Treasuries, according to Municipal Market Data. Additionally, 30-year munis were 104.7% of comparable Treasuries. Also, as of the close Friday, 30-year tax-exempt AAA-rated general obligation bonds were at 116.7% of the comparable London Interbank Offered Rate.
In a weekly report, Matt Fabian, managing director at Municipal Market Advisors, wrote "municipal prices have begun to firm on new BAB sales, more demand following the reinvestment of principal and interest payments received May 1, and substantially more active mutual fund buyers."
"These pressures have helped municipals outperform a faltering Treasury market, although divergence from Treasuries may be temporary as more issuance - via BABs - is tied directly to current Treasury yields."
"BAB offerings continue to act as a catalyst to higher prices/lower yields in the tax-exempt space," Fabian added. "This is particularly true at the long end of the yield curve, where strength is being supplemented by a solid return of mutual-fund buying."
Banc of America Securities-Merrill Lynch fixed-income strategist Philip Fischer also noted in his weekly commentary that "BAB yields have trended down as BAB spreads to Treasuries have tightened."
"However, the comparison of BABs to corporate bonds becomes more troublesome because of the difference in muni and corporate rating scales," he wrote. "Arguably an A-rated muni is roughly comparable to AA-rated corporate if global ratings were used."
The economic calendar was light yesterday.