Market firms following brutal week for yields; Alabama school authority bonds fail to get bids

By Aaron Hochman-Zimmerman and Sheri Kasprzak

New York, June 12 - Despite a week plagued by higher yields and dominated by a flood of new issues, Friday saw a bit of firming, market sources said.

"It's not that bad today, for a change," one trader noted.

"We've been firming a little today; yields might be down by a basis point or so. It was truly brutal this week, so it's a relief to feel a little firmer."

For the majority of the week, yields rose steadily, up as much as 5 bps in the middle of the yield curve.

"Those maturities were weaker by about 5 basis points [Thursday], while both the short and longer softened by 2 to 3 basis points or so," said Guy LeBas, chief fixed-income strategist for Janney Montgomery Scott LLC.

The activity had some traders reeling.

"We were crazy busy this week," one senior trader said.

"I don't know what to make of this market," he added, as it seemed that "the short and intermediate are backing off."

They are probably adjusting to Treasuries backing off, he said.

"We thought the market was getting, I don't know if you'd call it weak, but it's squirming here and there," he said.

Next week stays busy

Next week's heavy calendar seems like one to watch, he said.

"It sounds like next week may be a trend-setter," he said.

There is definitely interest in "non-rated and higher-yielding paper," but for the higher-rated paper in small trades "brokers are having a hard time finding bids," he said.

The choppy seas have been caused in some cases by "a lot of firms getting ready to bring deals," he said, which may discourage trading desks to hold large positions.

"Then throw summer in the mix," he said, but the week of June 15 should have "enough so that you'll really have to pay attention."

Even so, one sign for concern in the market, LeBas said, is the fact that the Alabama Public School and College Authority received absolutely no bids for its $284 million competitive sale that had been scheduled to price Thursday.

"One factor that may have influenced the no-bid situation is that the issuer is waiting on a court ruling over a derivatives deal as to whether or not it will have to honor contracts with [J.P. Morgan Securities Inc.]," LeBas said.

"Obviously, nonpayment on a legitimate contract could result in market consternation over an issuer's true credit quality, regardless of rating, but Alabama indicated that it will follow the court's ruling whether it wins or loses the suit."

Cal Health prices

Looking to primary, the California Health Facilities Financing Authority priced $267.365 million series 2009A-D revenue bonds for the Children's Hospital of Orange County, according to Joe DeAnda, spokesman for the authority.

The authority priced $139.565 million as series A bonds with a true interest cost of 6.556167% and serial and term maturities from 2009 to 2038.

The authority priced $50 million as series B bonds with a TIC of 3.734699% and $50 million as series C bonds with a TIC of 3.734699%. Also, $27.8 million was priced as series D bonds with a TIC of 3.740029%.

Morgan Stanley & Co. Inc. acted as underwriter for the negotiated bonds.

Proceeds will be used to refund series 1994, 2004A and 2004B bonds.

Atlanta to bring $600 million

Another busy week for new sales awaits, including a $600 million sale of series 2009A water and wastewater revenue bonds from the City of Atlanta. The sale on Tuesday marks the first water bond offering out of the Southern city since its 2007-2008 drought, according to LeBas.

JPMorgan and Merrill Lynch & Co. Inc. will bring the bonds (Baa1/A/BBB+).

The bonds are due 2010 to 2029 with term bonds due 2034 and 2039.

Proceeds will be used to pay for capital improvements to the city's water and wastewater system as well as to refund the city's series 2006 commercial paper notes.

Connecticut sale ahead

Also on Tuesday, the State of Connecticut is set to sell $310 million in series 2009 state revolving fund general revenue bonds, according to a sales calendar.

The bonds (Aaa/AAA/AAA) will be sold on a negotiated basis with Ramirez & Co. Inc. as the senior manager.

The sale includes $210 million in series 2009A general revenue bonds and $100 million in series 2009B refunding general revenue bonds.

The 2009A bonds are due 2010 to 2027, and the 2009B bonds are due 2010 to 2021.

Proceeds will be used to pay for water and wastewater projects as well as to refund the state's series 1999 bonds.

NYS Thruway deal

Also coming this month, the New York State Thruway Authority is expected to sell $300 million in series 2009B second general highway and bridge trust fund bonds, said a preliminary official statement.

The bonds will be sold through lead managers Goldman, Sachs & Co. and Siebert Brandford Shank & Co. LLC.

The bonds are due 2010 to 2029.

Proceeds will be used to fund state highway capital projects.

Puerto Rico bonds trade

Moving to the secondary market, traders said they saw some firming after a brutal week for municipal yields.

Among trades seen Friday were the Puerto Rico Sales Tax Financing Corp.'s sales tax revenue bonds sold earlier in the week. The 5.5% 2028 bonds were seen at 5.7%, near the pricing level, said a trader. The 6% 2042 bonds were seen at 6.034%, and the 5.25% 2019s were seen at 4.63%.

In other trading news, the Kansas Development Finance Authority's series 2009 revenue bonds sold this week for Adventist Health System were seen in action. The 5.75% 2034s were seen at 5.825%.

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