Munis Weaker Amid Giant Liberty Bond Sale

The municipal market was weaker yesterday, as New York's Liberty Development Corp. came to market with $2.581 billion of escrow bonds to meet a year-end deadline to sell Liberty bonds for redevelopment of the World Trade Center site.

The Liberty Development Corp. bonds was marketed to institutional investors in two series. Goldman, Sachs & Co. is underwriting the bonds.

The bulk of the issue, $2.581 billion, was offered yesterday as Series 2009A term-rate bonds and the proceeds will be invested in Treasuries. The bonds will be sold initially as a term bond with a 2049 maturity, subject to mandatory tender. Pricing information was not available by press time.

The proceeds will be used to purchase Treasury State and Local Government Time Deposit Certificates of Indebtedness or other Treasury certificates sufficient to pay interest on the bonds due July 1, 2010.

They will also purchase Treasury State and Local Government One-Day Certificates of Indebtedness Demand Deposit sufficient to pay principal and interest on the bonds during a mandatory tender period from Oct. 12, 2010, to Jan. 11, 2011.

Fitch Ratings assigned its AAA/F1-plus rating to the bonds, citing the legal structure and security of Treasuries. Moody's Investors Service rates the bonds Aaa.

The Series 2009B bonds will be marketed as variable-rate bonds at a par of $12.5 million, subject to change, on Dec. 29 and will be backed by an irrevocable direct-pay letter of credit from JPMorgan Chase Bank NA.

The Series B bond proceeds will be deposited into a capitalized interest account. Fitch rates the bonds AA-minus/F1-plus based on the LOC. Moody's rates them Aa1/VMIG1.

Traders said tax-exempt yields in the secondary market were higher by about two or three basis points overall.

"There's definite weakness out there, it's just a matter of how much activity there is," a trader in New York said. "There isn't a whole lot trading, though there's quite a bit more happening than yesterday. I'd call it weaker by about two, maybe three basis points overall."

"We're definitely somewhat weaker," a trader in Los Angeles said. "It's probably more like three basis points overall, but it's a little less in spots, a little more in others."

The Treasury market showed losses yesterday. The yield on the benchmark 10-year note opened at 3.68% and was quoted near the end of the session at 3.76%. The yield on the two-year note opened at 0.85% and was quoted near the end of the session at 0.91%. The yield on the 30-year bond was quoted near the end of the session at 4.61%, after opening at 4.56%.

Yesterday's Municipal Market Data triple-A scale yielded 2.95% in 10 years and 3.64% in 20 years, matching levels of 2.88% and 3.62%, respectively, Monday. The scale yielded 4.12% in 30 years yesterday, after Monday's level of 4.10%.

As of Monday' close, the triple-A muni scale in 10 years was at 78.3% of comparable Treasuries, according to MMD, while 30-year munis were 89.9% of comparable Treasuries. Also, as of Friday's close, 30-year tax-exempt triple-A rated general obligation bonds were at 93.0% of the comparable London Interbank Offered Rate.

Elsewhere in the new-issue market yesterday, Raymond James & Co. priced $157.9 million of marine terminal revenue bonds for the South Jersey Port Corp. in three series, including $129.7 million of taxable Build America Bonds.

The Series P-3 BABs mature from 2018 through 2021, with term bonds in 2029 and 2040. Yields range from 5.912% in 2018, or 3.84% after the 35% federal subsidy, to 7.365% in 2040, or 4.79% after the subsidy, all priced at par. The bonds were priced to yield between 216 and 275 basis points over the comparable Treasury yields. These bonds contain a make-whole call at the greater of par or Treasuries plus 25 basis points.

Bonds from the tax-exempt Series P-2 mature from 2013 through 2017 and from 2022 through 2024. Yields range from 2.10% with a 3% coupon in 2013 to 4.36% with a 5.75% coupon in 2024. These bonds are callable at par in 2020.

Also, bonds from the $4.9 million taxable Series P-1 mature in 2012 and 2013, yielding 2.995% and 3.145%, respectively, both priced at par. The bonds were priced to yield 155 and 170 basis points over the comparable Treasury yield, respectively.

The credit is rated A1 by Moody's and A by Standard & Poor's.

East Brunswick, N.J., competitively sold $29.4 million of general improvement bond anticipation notes for Beneficial Bank, with a net interest cost of 0.465%. The Bans, which mature in Jan. 2011, have a coupon of 1.4% and were not formally re-offered.

In economic data released yesterday, the third-quarter gross domestic product rose at a 2.2% annual rate, revised down from the preliminary estimate of 2.8% growth on an annual basis reported last month.

Core personal consumption expenditures for the third quarter were revised to 1.2% annual growth from 1.3%. The core PCE grew 2.0% on an annual basis in the second quarter.

Economists expected GDP to be up 2.8% and the core PCE price index to rise 1.3% in this revision, according to the median estimate from Thomson Reuters.

Also, existing home sales jumped 7.4% in November to a 6.54 million annual rate. In October, sales rose 9.9% to a revised 6.090 million annual rate. Economists polled by Thomson Reuters expected existing homes to sell at a 6.250 million annual rate in November.

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