Munis Weaker by 5-Plus Basis Points

20081009ryksw835-1-scarchilli-michael.jpg

The municipal market was weaker yesterday. Traders said tax-exempt yields were higher by five or six basis points.

"Not a lot of activity, but it was definitely a weaker day," a trader in New York said. "You had a bunch of people still on the sidelines, but we were off at least five basis points, more in spots."

Trades reported by the Municipal Securities Rulemaking Board yesterday showed losses. A dealer sold to a customer Port Authority of New York and New Jersey 5.375s of 2028 at 5.66%, up six basis points from where they traded Wednesday. Bonds from an interdealer trade of Florida 5.25s of 2037 yielded 5.60%, five basis points higher than where they were sold Wednesday. A dealer sold to a customer California 5.25s of 2028 at 5.73%, up six basis points from where they were sold Wednesday.

A dealer sold to a customer New York City 5s of 2025 at 5.62%, six basis points higher than where they traded Wednesday. Bonds from an interdealer trade of Puerto Rico 6s of 2038 yielded 7.30%, up five basis points from where they were sold Wednesday. A dealer sold to a customer insured King County, Wash., 5s of 2031 at 5.59%, five basis points higher than where they traded Wednesday.

The Treasury market showed losses after stock market futures posted gains. The yield on the benchmark 10-year Treasury note, which opened at 3.64%, was quoted near the end of the session at 3.80%. The yield on the two-year note opened at 1.55%, and was quoted near the end of the session at 1.68%. And the 30-year Treasury bond, which opened at 4.05%, was quoted near the end of the session at 4.11%.

This follows Wednesday, when the Federal Reserve slashed the federal funds rate target 50 basis points to 1.50% in a coordinated move with other central banks, which also cut rates 50 basis points. The emergency rate cut came three weeks before the next scheduled Federal Open Market Committee meeting and one day after Federal Reserve Board chairman Ben Bernanke alluded to the possibility of a rate cut in a speech.

In the accompanying statement, the Fed wrote that "incoming economic data suggest that the pace of economic activity has slowed markedly in recent months."

The cut was the eighth since September 2007, and the second to come in between regularly scheduled meetings. The FOMC left rates unchanged at the previous three meetings.

"I think the rate cut, along with that bailout package, is going to help, but it's still going to take some time," a trader in Los Angeles said. "We just have to take it day by day and see what happens."

"It's nice to have some activity with the new issues again," a second trader in New York said. "The fact that we had a few of those big deals come to market this week, despite everything else going on, is it at least a little positive sign."

On Wednesday Massachusetts priced its twice-postponed $750 million revenue anticipation note sale. Additionally, Ohio came to market with a $240 million GO sale, and Georgia's Athens-Clarke County Unified Government priced a $228.2 million water and sewerage revenue bond sale. And Tuesday, the Kentucky State Property and Buildings Commission priced a $375 million new-money and refunding revenue bond deal.

In the new-issue market yesterday, Banc of America Securities LLC priced $85 million of consolidated capital assessment district bonds for the Sacramento Area Flood Control Agency. The bonds mature from 2009 through 2028, with a term bond in 2037. Yields range from 2.30% with a 4% coupon in 2009 to 5.80% with a 5.625% coupon in 2037. The bonds, which are callable at par in 2018, are insured by Berkshire Hathaway Assurance Corp. The underlying credit is rated A1 by Moody's Investors Service and AA-minus by Standard & Poor's.

Madison, N.J., competitively sold $26.3 million of general improvement bonds to Citi with a net interest cost of 4.88%. The bonds mature from 2009 through 2028, with yields ranging from 2.20% with a 4.5% coupon in 2009 to 5.18% with a 5% coupon in 2027. Bonds maturing in 2015 and 2028 were not formally re-offered. The bonds, which are callable at par in 2018, are rated AAA by Standard & Poor's.

Florida's Charlotte County School District competitively sold $17 million of tax anticipation notes to Banc of America with a NIC of 2.68%. The Tans mature in October 2009, yielding 2.65% with a 4% coupon. The notes are rated MIG-1 by Moody's.

In economic data released yesterday, initial jobless claims for the week ended Oct. 4 came in at 478,000, after a revised 498,000 the previous week. Economists polled by Thomson Reuters had predicted 478,000 initial jobless claims.

Continuing jobless claims for the week ended Sept. 27 came in at 3.659 million, after a revised 3.603 million the prior week. Economists polled by Thomson predicted 3.600 million continuing jobless claims.

Wholesale inventories rose 0.8% in August, after a 1.4% gain the previous month. Economists polled by Thomson predicted a 0.5% uptick.

Wholesale sales dipped 1.0% in August, after a 0.3% decline the previous month. Economists polled by Thomson Reuters predicted a 0.4% gain.

The Treasury Department yesterday auctioned 10-year notes with a 3.500% coupon at a 3.790% yield, a price of 97.73. The bid-to-cover ratio was 2.31. Tenders totaled $23.1 billion and the Treasury accepted $10 billion.

For reprint and licensing requests for this article, click here.
MORE FROM BOND BUYER