The municipal market was weaker yesterday, following Treasuries.

“The market is off a fair amount, as we got kind of smacked here with the retail sales [number],” a trader in Chicago said. “It was kind of poised to go down. The market’s fine, though, at this level, people will start coming back in. There’s a lot of money that’s got to be reinvested, and I can’t imagine it’s going into stocks. People are just waiting on the sidelines, which so far has paid off. Bottom line, we’re off five to nine basis points.”

Trades reported by the Municipal Securities Rulemaking Board yesterday showed losses. Bonds from an interdealer trade of California 5s of 2034 yielded 5.11%, up three basis points from where they traded Wednesday. Bonds from an interdealer trade of Arizona’s Salt River Project Agricultural Improvement & Power District 5s of 2038 yielded 4.72%, up six basis points from where they traded Wednesday. Bonds from an interdealer trade of NewYork City Municipal Water Finance Authority 5s of 2037 yielded 4.82%, up nine basis points from where they traded Wednesday.

“The market has sold off as much in price as in attitude,” a trader in Los Angeles added. “At the same time, we’re seeing some fairly decent investor response, so maybe this level will hold, but for the time being there’s a negative tone.”

The Treasury market showed losses yesterday. The yield on the benchmark 10-year Treasury note, which opened at 4.07%, finished at 4.21%. The yield on the two-year note was quoted near the end of the session at 3.02%, after opening at 2.81%.

“Yields are going up because there’s a global recognition that inflation is a real problem,” said Bruce Bittles, chief investment strategist for Robert W. Baird & Co.

Bittles said he believed inflation maybe a short-term problem but that the debt bubble makes “disinflation or worse our biggest threat” in the long term. He said the recent declines in gold and copper prices could be a sign the commodities markets will “crack” soon, which would help the bond market rebound.

In the new-issue market yesterday, Georgia competitively sold $465.9 million in general obligation bonds to Merrill Lynch & Co. with a true interest cost of 4.27%. The bonds mature 2009 through 2028, with yields ranging from 2.38% on a 5% coupon in 2010 to 4.33% on a 5% coupon in 2025. Bonds maturing 2009, 2014, 2015, and 2026 through 2028 were not reoffered. The bonds, which are callable at par in 2018, are rated Aaa by Moody’s Investors Service and triple-A by Standard & Poor’s and Fitch Ratings.

Morgan Stanley & Co. priced $250 million in airport system revenue bonds from the Metropolitan Washington Airports Authority, subject to the alternative minimum tax. Bonds mature from 2012 through 2029, with yields ranging from 4.21% with a 4.1% coupon in 2012 to 5.55% with a 5.375% coupon in 2029. The bonds, which are callable at par in 2018, are rated Aa3 by Moody’s, AA-minus by Standard & Poor’s and AA by Fitch.

Lehman Brothers priced $86.8 million in revenue refunding bonds for the Illinois Finance Authority for the benefit of the Silver Cross Hospital and Medical Center. Bonds mature 2018, 2023 and 2030, with yields ranging from 5% on a 5.5% coupon in 2018 to 5.82% on a 5.5% coupon in 2030. The bonds, which are callable at par in 2018, are rated A by Standard & Poor’s and Fitch.

Also, St. Tammany Parish Wide School District No. 12 of Louisiana competitively sold $67 million in general obligation school bonds to BB&T Capital Markets with a true interest cost of 4.41%. Bonds mature 2010 through 2028, with yields ranging from 2.54% on a 5% coupon in 2010 to 4.8% on a 4.75% coupon in 2028. The bonds, which are callable at par in 2018, are insured by Assured Guaranty Corp. and have underlying credit ratings of Aa3 from Moody’s and AA from Standard & Poor’s.

In economic data released yesterday, retail sales climbed 1.0% in May, after a revised 0.4% jump the previous month. Economists polled by IFR Markets had predicted a 0.5% gain. Retail sales excluding autos rose 1.2% in May, after a revised 1.0% increase the prior month. Economists polled by IFR Markets had predicted a 0.7% gain.

Initial jobless claims for the week ended June 7 came in at 384,000, after a revised 359,000 the previous week. Economists polled by IFR Markets had predicted 365,000 initial claims. Continuing jobless claims for the week ended May 31 came in at 3.139 million, after a revised 3.081 million the prior week. Economists polled by IFR Markets had predicted 3.120 million continuing claims.

Business inventories were up 0.5% and sales levels rose 1.4% in April. Business inventories rose to $1.475 billion following an upwardly revised 0.2% gain in March. IFR Markets had projected that business inventories would be up 0.3% in the month. Meanwhile, the 1.4% increase in overall business sales brought the category to $1.178 billion. The April figure followed an upwardly revised 1.2% increase in March, and compared to IFR’s projected 1.8% increase.

Finally, import prices rose 2.3% in May, after a revised 2.4% rise the previous month. Economists polled by IFR Markets had predicted a 2.0% rise. 

 

 

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