The municipal market was weaker by two to four basis points yesterday, as participants to continue to await an eventual resolution on the potential $700 billion federal government bailout plan.
The Senate was set to vote on a version of the previously voted-down bailout package, which now includes the $100 billion tax "extenders" package, which could make it more likely to pass.
However, even if the bailout plan passes both the Senate and House, some market participants don't believe it will be an easy fix for all that has ailed the municipal market in recent weeks.
"The muni market is not well right now," said Michael Pietronico, chief executive officer at Miller Tabak Asset Management. "The patient is very close to terminal."
Pietronico said that the market is "having a hard time finding any semblance of stability, and liquidity is very difficult. You just can't have large institutions go away this quickly and pull capital from the market, and have it not have a major effect."
To that end, Pietronico said he's "having a hard time figuring out why $700 billion is going to be the panacea."
"Right now, the reluctance to lend is the greater concern, particularly in the muni market, where localities obviously don't have mortgage exposure like banks, to the extent they do, yet they're having a hard time getting funding," he said. "So I'd like to think it will help, and most certainly it will, but I'm not sure it's going to unclog the system. Right now, the system is very clogged, and time just needs to pass."
He also said that selling pressure yesterday "doesn't seem as great as it was in the middle of last week."
"But perhaps some of that might be to the fact that yields are so much higher than where they were, that it's getting really difficult to justify a sale in here at some of these fire-sale prices," Pietronico said. "However, what I'm not seeing is a tremendous amount of buying, which is really what you'd want to look for to try to and handicap whether the market stabilizes or not."
Trades reported by the Municipal Securities Rulemaking Board yesterday showed losses. A dealer sold to a customer Tennessee School Building Authority 5s of 2032 at 5.23%, four basis points higher than where they traded Tuesday. A dealer sold to a customer Puerto Rico Sales Tax Financing Corp. 6.05s of 2036 at 5.98%, up three basis points from where they were sold Tuesday. Bonds from an interdealer trade of California 5s of 2032 yielded 5.73%, two basis points higher than where they traded Tuesday.
"It's quiet, and still a very uneasy market," a trader in Los Angeles said. "Most of these dealers are buying bonds really cheap from customers. I've seen some really cheap trades. People are basically working order situations, but there is no real flow."
"The market is still very quiet, waiting for stability in the market and a program from the federal government," a trader in New Jersey added. "Obviously we can't stay at this pace because there are financing needs, but it's impossible to get anything done in the primary market. And secondary positions just aren't moving. We put a couple things out for bid and got nothing."
Through Tuesday, there has been an average this week of 39,500 trades in the secondary market over about 12,000 issues, for a daily average volume of about $14.5 billion, about 20% less than typical daily volume.
The Treasury market showed gains yesterday, after the stock market closed down only slightly. The yield on the benchmark 10-year Treasury note, which opened at 3.82%, was quoted near the end of the session at 3.73%. The yield on the two-year note opened at 1.96%, and was quoted near the end of the session at 1.81%. And the 30-year Treasury bond, which opened at 4.31%, was quoted near the end of the session at 4.20%.
In the new-issue market, which has seen numerous postponements and cancellations since the tremendous volatility in the market began more than two weeks ago, a $105 million competitive deal for Virginia's Fairfax County Redevelopment and Housing Authority was sold to Banc of America Securities LLC yesterday, with a net interest cost of 2.59%. The Bans mature in October 2009, yielding 2.45% with a 4% coupon. The credit is rated MIG-1 by Moody's Investors Service and SP1-plus by Standard & Poor's.
Also, New York's Metropolitan Transportation Authority successfully issued $230 million of its commercial paper yesterday, with maturities ranging from one week to 30 days at a maximum rate of 5.25%. Enhancement is provided by a letter of credit through ABN AMRO Bank. Remarketing agents are JPMorgan, Morgan Stanley, and Barclays Capital Inc.
South Carolina's Charleston County School District competitively sold $42 million of general obligation bonds to Banc of America with a NIC of 2.49%. The bonds mature in March 2009, yielding 2.47% with a 4% coupon. The bonds are rated Aa2 by Moody's and AA by Standard & Poor's.
However, several more deals were postponed yesterday, the largest of which was a $375 million competitive note sale for Massachusetts. The notes, which were scheduled to be priced today, are now scheduled to come to market Oct. 7.
The Bond Buyer one-year note index rose 25 basis points this week, to 2.44%, which is the highest since Jan. 16, when it was 2.57%. In the three weeks since Sept. 10, when the index was 1.61%, it has risen 83 basis points.
