The municipal market was unchanged to weaker in light trading yesterday after ending last week on a lackluster note that put a halt to an April rally.
"It's sort of a summer Monday - it feels pretty slow and the muni market has backed up a little bit," a trader in San Francisco said. "The muni market seems to be consolidating robust gains that have been achieved over the past couple of weeks. I think they're just backing off a little bit after a big run."
In yesterday's new-issue market, Morgan Stanley priced $372.9 billion of revenue bonds for the New Jersey Health Care Facilities Financing Authority on behalf of Virtua Health. The bonds mature 2016 through 2021, with term bonds in 2024, 2029, 2033, and 2038. Yields range from 4% with a 4% coupon in 2016 to 6% with a 5.75% in 2033.
The bonds are callable at par in 2014, except those maturing in 2016, 2017, 2020, 2033, and 2038, which are callable at par in 2019. The bonds, which are rated A by Standard & Poor's and A-plus by Fitch Ratings, are insured by Assured Guaranty Corp. except for those in 2016, 2017 and 2033.
RBC Capital Markets priced $177 million of unlimited-tax refunding and school building bonds for the Fort Worth Independent School District. The bonds mature from 2010 through 2029, with yields ranging from 0.50% with a 3% coupon in 2011 to 4.59% on a 5% coupon in 2029. The bonds, which are callable at par in 2019, are rated Aa2 by Moody's Investors Service and AA by Standard & Poor's.
Morgan Keegan & Co. priced $58.5 million of unlimited-tax school building and refunding bonds for the McKinney Independent School District, also in Texas. The bonds mature from 2010 through 2030, with a term bond in 2034. Yields range from 1.37% with a 4% coupon in 2011 to 4.97% with a 4.75% coupon in 2034. The bonds, which are callable at par in 2019, are rated Aa3 by Moody's and AA by Standard & Poor's.
Wachovia Securities LLC priced $42.9 million for the Maine Municipal Bond Bank. The bonds mature 2009 through 2029, with a term bond in 2034. Yields range from 0.63% with a 3% coupon in 2009 to 4.54% with a 5% coupon in 2034. The bonds, which are callable at par in 2019, are rated Aa1 by Moody's and AAA by Standard & Poor's and Fitch.
Merrill Lynch & Co. priced for retail $350 million for the New Jersey Transportation Trust Fund Authority. The offering includes $170 million of current interest bonds maturing from 2029 to 2031, $90 billion of capital appreciation bonds maturing from 2032 to 2034 and in 2036, 2038, and 2039, and $90 billion of convertible bonds maturing in 2039. Total retail orders were not available at press time.
In this week's new-issue market, a total of $6.28 billion is estimated to be coming to market, led by a $2 billion offering from Florida's Citizens Property Insurance Corp., according to Ipreo and The Bond Buyer. Last week, a total of $12.67 billion came to market, highlighted by heavy issuance of Build America Bonds from some of the market's largest issuers, including $5.23 billion of BABs from California.
The municipal market weakened at the end of last week after opening up with a continuation of an April rally. Thursday marked the first day this month The Bond Buyer 40-bond index fell.
"The move that we made in tax-exempt rates did a lot to close the gap," a trader in New York said. "Now there's just a realization that we're at record low yields on the front end of the curve and the demand from traditional muni investors, while it was strong for a week or so, is not unlimited. The rally has lost its legs and we're just getting a little consolidation."
The BAB issuance helped drive the gains in the tax-exempt sector to begin the week with some investors expecting they "will supplant large amounts of real or projected tax-exempt issuance over the next few years," Municipal Market Advisors managing director Matt Fabian wrote in a weekly report. Even some lower-rated bonds have been helped by the rally, with higher bond prices driving increases in mutual funds net-asset values, encouraging inflows, he said.
Banc of America Securities-Merrill Lynch fixed-income strategist Philip Fischer noted in his weekly commentary that A-rated bonds were the best performing sector. They were "undoubtedly helped by California's strong performance following the sale of its large BAB issue".
Fabian warned the tax-exempt rally was not related to any increase in issuers' credit quality.
"Stronger bond prices and easier issuer market access have not hinged on improvements, or perceived improvements, in issuer credit quality," Fabian wrote. Later, he added: "Instead, the increased borrowing enabled by the BAB program will reasonably extend the current credit downturn for municipal issuers by allowing more leverage to governments already struggling to balance revenues and costs."
The Treasury market was mixed yesterday. The yield on the benchmark 10-year note, which opened at 2.99%, closed at 2.91%. The yield on the two-year note closed at 0.88% after opening at 0.95%. The yield on the 30-year bond, which opened at 3.88%, closed at 3.83%.
Economic data to be released this week includes consumer confidence on Tuesday, first-quarter gross domestic product on Wednesday, and the Institute for Supply Management's manufacturing index on Friday. Economists polled by IFR Markets expect a 29.5 consumer confidence reading, a 5% drop in first-quarter GDP, and a 38.0 reading for the ISM survey.
