The municipal market was slightly weaker yesterday, following Treasuries, as market participants ease themselves back to work after a three-day holiday weekend.
"We're definitely weaker based on Treasuries, but we're not following that sell-off at quite the same magnitude," a trader in New York said. "I'd say we're weaker about two or three basis points."
The Treasury market showed losses yesterday as stocks rose on news that JPMorgan Chase & Co. was raising its purchase price on Bear, Stearns & Co. to $10 a share from $2 a share. The yield on the benchmark 10-year Treasury note, which opened at 3.34%, finished at 3.54%. The yield on the two-year note was quoted near the end of the session at 1.81% after opening at 1.59%.
"We didn't see a whole lot of trading, but we definitely saw bonds get cheaper, following the government market," a muni trader in Los Angeles said.
In a weekly report, Matt Fabian, managing director at Municipal Market Advisors, wrote that "municipal trading has nearly ground to a halt."
"This reflects the already overstuffed balanced sheets of dealers, market-makers, and liquidity providers; enervated demand from tender-option bond and arbitrage programs; fears of substantial 'off-calendar' auction-rate securities restructuring supply; and persistent problems in floating-rate markets," he wrote. "And despite towering ratios versus Treasuries, absolute yields remain just less than attractive to individual and crossover investors."
"Together, these vectors are muting muni price changes and creating wild day-to-day swings in relative value amid impulsive flight to quality flows in the Treasury market," Fabian wrote. "In fact, by the end of last week, municipal 10-year yield benchmarks were negatively correlated with Treasuries, meaning muni yields were more likely to rise when Treasury yields fall - the exact opposite of 'normal' relationship - for the first time in the last seven years. This is a very difficult situation for hedged and/or arbitrage-oriented investors."
In economic data released yesterday, existing home sales increased 2.9% in February to a seasonally adjusted 5.03 million-unit rate. The sales increase to 5.03 million compared to the 4.850 million unit pace predicted by IFR Markets' poll of economists, and followed an unrevised 0.4% drop to a 4.89 million unit level in January.
Two $700 million offerings - from the Utah Transit Authority and Washington's Energy Northwest - and a $600 million deal from the Georgia State Road and Tollway Authority lead the way in the new-issue market this week, which will see a slight uptick in activity.
This week, $5.7 billion of bonds are expected to be priced in the new-issue market, following the roughly $4.8 billion that came to market in the three and a half days in which the market was open for business last week.
In the week's largest scheduled transaction, UBS Securities LLC tomorrow will price $700 million of sales tax revenue bonds for the Utah Transit Authority. The bonds are slated to mature from 2018 through 2028, with term bonds in 2033 and 2038. The credit is rated Aa3 by Moody's Investors Service, AAA by Standard & Poor's, and AA by Fitch Ratings.
The Utah Transit Authority last sold sales tax revenue bonds in May 2007, when it refunded $261.1 million over two series, priced by Morgan Stanley. The larger series - $132.3 million of capital appreciation bonds - matures from 2018 through 2027, with yields ranging from 4.55% in 2018 to 5.05% in 2037. The smaller series - worth $128.8 million of current interest bonds - matures from 2016 through 2020, with term bonds in 2024, 2028, 2031, and 2035. Yields range from 3.98% in 2016 to 4.40% in 2035, all with 5% coupons. All the bonds are insured by MBIA Insurance Corp.
Goldman, Sachs & Co. will price $697.2 million of revenue bonds and electric revenue refunding bonds for Energy Northwest.
In the new-issue market yesterday, JPMorgan priced for retail investors a portion of today's institutional pricing of $600 million of federal highway grant anticipation revenue bonds for the Georgia State Road and Tollway Authority. The larger $480 million series, which matures from 2009 through 2020, was not offered during the retail order period. However, bonds from the $120 million series were offered to retail investors. Those bonds also mature from 2009 through 2020, with yields ranging from 2.00% with a 3.5% coupon in 2009 to 4.12% with a 4.1% coupon in 2020.
All bonds maturing from 2013 through 2020 were insured by Financial Security Assurance Inc. The underlying credit is rated Aa3 by Moody's, and AA-minus by both Standard & Poor's and Fitch.
The authority last sold grant anticipation revenue bonds in July 2006. Citi priced that $360 million deal, which matures from 2007 through 2018. Yields range from 3.74% with a 5% coupon in 2008 to 4.23% with a 5% coupon in 2018. Bonds maturing in 2007 were decided via sealed bid. Bonds maturing from 2010 through 2018 are insured by MBIA.
Among 5% coupon paper in the deal, bonds maturing in 2008 were tightest to that day's MMD triple-A yield curve, with yields seven basis points over the curve. Bonds maturing in 2012 and 2013 were widest to the scale, with yields 14 basis points over.