Munis Weaker as Larger Deals Price

The municipal market finished another session weaker yesterday as many of the week's largest scheduled deals were priced in the new-issue market, including its largest slated taxable Build America Bonds transaction.Goldman, Sachs & Co. priced $375 million of electric and gas systems revenue BABs for San Antonio on behalf of CPS Energy. The bonds yield 5.99%, or 3.89% after the 35% federal subsidy, in 2039, priced at par. The deal was priced to yield 150 basis points over the comparable Treasury yield. The credit is rated Aa1 by Moody's Investors Service, AA by Standard & Poor's, and AA-plus by Fitch Ratings.

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

"It's pretty quiet, but there's some weakness again," a trader in New York said. "The secondary market is kind of thin, people seem to just disappear the minute the market goes down. It's hard to get anything going when you run into a stretch like this. It's going to be hard for it to turn around now until the government market turns around too.

"We are seeing some activity on the short end though, where you're not seeing as much cheapness," the trader said. "It's that 10- to 20-year portion of the curve that's just really, really thin, where you can't get much of anything done. We're trading more along the lines of how we did in the 1980s, when it was more supply-and-demand driven, looking at the new deals and such. The problem is, a lot of buyers have more of a '90s mentality, where they vanish when the market goes down."

In other new-issue activity yesterday, Morgan Stanley priced $440 million of transportation excise tax revenue bonds for the Arizona Transportation Board. The bonds mature from 2010 through 2025, with yields ranging from 1.14% with a 2% coupon in 2011 to 4.21% with a 5% coupon in 2025. 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-plus by Standard & Poor's.

JPMorgan priced for retail investors $200 million of hospital revenue bonds for the Harris County, Tex., Cultural Education Facilities Finance Corp. The bonds mature from 2011 through 2019, with term bonds in 2024, 2029, 2034, and 2039. Yields range from 2.45% with a 3% coupon in 2011 to 5.375% priced at par in 2034. Bonds maturing in 2029 and 2039 were not offered during the retail order period. The bonds are callable at par in 2019, except bonds maturing in 2034, which are callable at par in 2014. The credit is rated Aa2 by Moody's and AA by Standard & Poor's and Fitch.

Fairfax County, Va., competitively sold $152.2 million of sewer revenue bonds to Citi with a true interest cost of 4.45%. The bonds mature from 2010 through 2039, with yields ranging from 1.34% with a 5% coupon in 2012 to 4.29% with a 5% coupon in 2029. Bonds maturing in 2010, 2011, 2019, 2020, and from 2030 through 2039 were not formally re-offered. The bonds, which are callable at par in 2019, are rated Aa2 by Moody's and AAA by Standard & Poor's and Fitch.

Harford County, Md., competitively sold $120 million of consolidated public improvement bonds to Citi with a TIC of 3.75%. The bonds mature from 2010 through 2029, with yields ranging from 2.71% with a 5% coupon in 2017 to 3.89% with a 4% coupon in 2024. Bonds maturing from 2010 through 2016 and from 2025 through 2029 were not formally re-offered. The bonds, which are callable at par in 2019, are rated Aa1 by Moody's and AA-plus by Standard & Poor's and Fitch.

JPMorgan priced $131.9 million of environmental facilities refunding revenue bonds for the Indiana Finance Authority. Bonds from the $41.9 million Series A mature in 2016 and are priced at par to yield 4.90%. Bonds from the $30 million Series B mature in 2016 and are priced at par to yield 4.90%. Bonds from the $60 million Series C mature in 2016 and are priced at par to yield 4.90%. None of the bonds are callable. The credit is rated Baa1 by Moody's, BBB by Standard & Poor's, and BBB-plus by Fitch.

Merrill Lynch & Co. priced $107.8 million of airport facilities refunding revenue bonds for Florida's Greater Orlando Aviation Authority. Bonds from the $96.5 million Series A, which are subject to the alternative minimum tax, mature from 2015 through 2021, with a term bond in 2023. Yields range from 5.07% with a 5.5% coupon in 2015 to 5.71% with a 5.5% coupon in 2023. These bonds are callable at par in 2019. Bonds from the $11.3 million Series B, which are taxable, mature in 2014 and 2015, yielding 4.78% and 5.13% respectively, both priced at par. The credit is rated Aa3 by Moody's, A-plus by Standard & Poor's, and AA-minus by Fitch.

The Treasury market was mixed yesterday. The yield on the benchmark 10-year note, which opened at 3.67%, finished at 3.62%. The yield on the two-year note was quoted near the end of the session at 0.96% after opening at 0.94%. The yield on the 30-year bond, which opened at 4.53%, was quoted near the end of the session at 4.48%.

As of Monday's close, the triple-A muni scale in 10 years was at 81.4% of comparable Treasuries, according to Municipal Market Data. Additionally, 30-year munis were 101.5% of comparable Treasuries. Also, as of the close Monday, 30-year tax-exempt triple-A rated general obligation bonds were at 105.9% of the comparable London Interbank Offered Rate.

The economic calendar was light yesterday.

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