Weakness Persists; New Issues Pulled

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The municipal market continued to weaken yesterday, with yields pushing higher by as much as 10 basis points in spots, causing issuers in Hawaii and Texas to pull scheduled new issues from the market.

Citing poor market conditions, Merrill Lynch & Co. yesterday postponed this week’s planned $655 million Hawaii general obligation sale. Additionally, RBC Capital Markets did the same with a two-pronged Houston Independent School District offering of over $385 million, which was to include $151 million of taxable BABs. The Houston deal is now day-to-day, but no further information on the Hawaii deal was released.

In the new-issue market, the state of Washington competitively sold $566.7 million of new-money and refunding tax-exempt GOs.

A $230 million series was won by Merrill Lynch, with a true interest cost of 4.23%. The bonds mature from 2010 through 2030, with a term bond in 2034. Yields range from 0.87% with a 3% coupon in 2011 to 3.84% with a 5% coupon in 2034. Bonds maturing in 2010, from 2012 through 2015, and from 2025 through 2034 were sold, and not available. The bonds are callable at par in 2019.

A $215.5 million series was also won by Merrill. The TIC was not available by press time. The bonds mature from 2012 through 2026, with yields ranging from 3.65% with a 5% coupon in 2022 to 3.91% with a 5% coupon in 2026. Bonds maturing from 2012 through 2021 were sold, and not available. The bonds are callable at par in 2020.

A $121.2 million series was won by Barclays Capital, with a TIC of 3.71%. The bonds mature from 2012 through 2026, with yields ranging from 1.78% with a 5% coupon in 2013 to 3.96% with a 5% coupon in 2026. The bonds are callable at par in 2020.

Washington was also to sell $500 million of taxable BABs alongside the tax-exempt competitive offering, priced by JPMorgan. Pricing information was not available by press time. The taxable and tax-exempt bonds are rated Aa1 by Moody’s Investors Service, AA-plus by Standard & Poor’s and AA by Fitch Ratings.

On a day when equities saw the Dow Jones industrial average close above 10,000 for the first time in a year, traders said tax-exempt yields in the secondary market were higher by about five basis points overall, but increased by about 10 basis points in the intermediate part of the curve, from about 10 to 15 years out. The long end of the curve saw losses of about four to six basis points.

“We’ve been cheapening pretty steadily for about a week, but today we’re seeing fairly significant losses, more than we’d seen the last few sessions,” a trader in New York said. “I’d say pretty comfortably we’re down four or five basis points overall, and probably more depending on where in the curve you’re talking. I mean, the intermediate part of the curve, I’ve seen stuff eight, nine basis points cheaper.”

“We’re seeing most of the losses in that 10 to 15 year range,” a trader in Los Angeles said. “I’d say we’re probably down a good 10 basis points out there. It’s right around there, eight, nine, maybe even 11 or 12, depending on the credit. The rest of the curve, you’re seeing things cheapening maybe four, five, six basis points. Overall, I guess I’d say five, maybe six cheaper.”

The Treasury market also showed losses yesterday. In the same part of the curve where munis were weakest, the yield on the benchmark 10-year note, which opened at 3.35%, was quoted near the end of the session at 3.43%. The yield on the two-year note was quoted near the end of the session at 0.94% after opening at 0.90%. The yield on the 30-year bond, which opened at 4.20%, was quoted near the end of the session at 4.27%.

Also yesterday, the Municipal Market Data triple-A scale yielded 3.05% in 10 years and 3.66% in 20 years, following levels of 2.92% and 3.66%, respectivelyy. The scale yielded 4.09% in 30 years, after pushing over 4% at 4.03% yesterday.

As of yesterday’s close, the triple-A muni scale in 10 years was at 88.2% of comparable Treasuries, according to MMD, and 30-year munis were 96.9% of comparable Treasuries. Thirty-year tax-exempt triple-A rated general obligation bonds were at 100.0% of the comparable London Interbank Offered Rate.

Elsewhere in the new-issue market, Barclays yesterday priced $317.8 million of revenue financing system bonds for the Texas A&M University Board of Regents. The bonds mature from 2011 through 2029, with term bonds in 2034, 2039, and 2040. Yields range from 0.95% with a 4% coupon in 2011 to 4.43% with a 5% coupon in 2039. Bonds maturing in 2040 were not formally re-offered. The bonds, which are callable at par in 2019, are rated Aa1 by Moody’s and AA-plus by Standard & Poor’s and Fitch.

In economic data released yesterday, September retail sales posted a 1.5% decrease to $344.7 billion, while excluding automobiles, retail sales rose 0.5% to $288.5 billion. The results followed downwardly revised headline figures from August. Economists polled by Thomson Reuters had predicted September retail sales would decline 2.1% but post a 0.2% gain excluding autos.

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