The municipal market was slightly weaker yesterday amid light to moderate secondary trading activity, as several of the week’s largest new issues were priced in the primary.
“There’s some weakness out there,” a trader in Los Angeles said. “There’s probably a bit more activity out on the Street than there’s been, but it’s still reasonably quiet. We’re probably down two or three basis points on the whole.”
In the new-issue market yesterday, Wisconsin competitively sold $800 million of 2010 operating notes to various bidders.
The notes, which mature in June 2011, were sold in 12 pieces to six different bidders. Citi won the largest number of pieces with four totaling $260 million.
Their largest chunk of notes is worth $200 million, with an effective rate of 0.51%. They also won three tranches of $20 million each, with effective rates of 0.48%, 0.49%, and 0.50%.
JPMorgan brought in the largest quantity of notes with $360 million over three pieces.
Their largest component was for $160 million, with an effective rate of 0.52%. They also won two additional $100 million pieces with effective rates of 0.50% and 0.51%.
Goldman, Sachs & Co. was the only other bidder to win multiple pieces of the deal. They won two $50 million components with effective rates of 0.48% and 0.51%.
Piper Jaffray & Co. and Wells Fargo Securities each won one $30 million piece, both with effective rates of 0.51%.
TD Securities won the smallest piece of the deal, worth $20 million, with an effective rate of 0.51%.
The notes mature in June 2011 and are rated F1-plus by Fitch Ratings.
In the long-term new-issue market, Bank of America Merrill Lynch priced $615 million of senior-lien revenue bonds for the Texas Private Activity Bond Surface Transportation Corp.
The bonds mature from 2032 through 2034, with a term bond in 2040. Yields range from 7.00% with a 7.5% coupon in 2032 to 7.25% with a 7% coupon in 2040.
The bonds, which are callable at par in 2020, are rated Baa3 by Moody’s Investors Service and BBB-minus by Fitch.
Siebert Brandford Shank & Co. priced $295.9 million of waterworks and sewer system revenue refunding bonds for Dallas.
The bonds mature from 2011 through 2030, with term bonds in 2035 and 2039. Yields range from 0.76% with a 3% coupon in 2012 to 4.41% with a 5% coupon in 2039. Bonds maturing in 2011 were not formally re-offered.
The bonds, which are callable at par in 2020, are rated Aa1 by Moody’s and AAA by Standard & Poor’s.
The Treasury market showed losses yesterday.
The benchmark 10-year note was quoted near the end of the session at 3.31% after opening at 3.25%. The 30-year bond finished at 4.22% after opening at 4.18%. The two-year Treasury note was quoted near the end of the session at 0.77% after opening at 0.73%.
The Municipal Market Data triple-A scale yielded 2.99% in 10 years and 3.78% in 20 years yesterday, following levels of 2.97% and 3.77% on Monday. The scale yielded 4.08% in 30 years yesterday, compared to Monday’s 4.07%.
Monday’s triple-A muni scale in 10 years was at 90.8% of comparable Treasuries and 30-year munis were at 97.1%, according to MMD, while 30-year tax-exempt triple-A general obligation bonds were at 101.0% of the comparable London Interbank Offered Rate.
In a research report, Tom Kozlik, municipal credit analyst at Janney Capital Markets, cited as “overblown” the fear that municipals will be the next market bubble to burst, following the subprime mortgage meltdown and the dot-com stock bust.
He expects experienced investors to concentrate on the reality of the factors stressing the municipal market, which include lower but stabilizing revenue, political obstacles, a difficult upcoming fiscal-year budget cycle, uncertainty about further federal government stimulus, and the direction of the U.S. economy.
“A key difference is that most municipal market credits, unlike subprime loans or dot-com stocks, are solid investments and will continue to pay principal and interest until maturity,” Kozlik wrote. “Municipal market investors should not overreact to doomsday scenarios and incidents with extenuating circumstances.”
Hefty pension and health care benefit liabilities exist, but are a medium to long-term credit risk as payments can be postponed, despite additional future expense incurred from deferring their payment, according to Kozlik.
In economic data released yesterday, import prices fell 0.6% in May, the largest decrease since last July but a smaller drop than economists estimated.
Import prices excluding petroleum increased 0.5% with gains in capital goods and nonfuel industrial supplies prices.
Petroleum prices sank 5.0%, the largest drop since a 25% plunge in December 2008.
Total fuel imports fell 4.9% for the month, also the largest decrease since December 2008.
Economists expected import prices to decrease 1.3%, according to the median estimate from Thomson Reuters.
Import prices for April were revised higher to a 1.1% increase. Import prices last declined in February.
Results of the Empire State Manufacturing Survey showed that conditions for New York State manufacturers improved in June, as the general business conditions index climbed to 19.57 in the month from 19.11 in May.
Economists surveyed by Thomson Reuters had expected the index would be 20.00.