The municipal market was mostly unchanged yesterday, though with a slightly firmer tone, as the Dormitory Authority of the State of New York brought to market $755 million of Build America Bonds.
In the new-issue market yesterday, Merrill Lynch & Co. priced $755.8 million of state personal income tax revenue BABs, which mature from 2022 through 2025, with term bonds in 2039. Yields range from 4.99%, or 3.24% after the 35% federal subsidy, in 2022 to 5.63%, or 3.66% after the subsidy, in 2039, all priced at par. The bonds were priced to yield between 130 and 180 basis points over the comparable Treasury yields, and contain an optional make-whole call at Treasuries plus 35 basis points. The credit is rated AAA by Standard & Poor's and AA-minus by Fitch Ratings.
Also, both JPMorgan and Treasurer Bill Lockyer confirmed that JPMorgan will lend California $1.5 billion via a private placement that will allow the state to pay off IOUs issued during a budget stalemate and cash-flow crisis this summer. However, neither side would release the precise terms of the loan yesterday. The $1.5 billion loan — technically a private placement of interim revenue anticipation notes — will be repaid when the state goes out to market with a $10.5 billion Ran sale in mid-September. JPMorgan offered California a bridge loan of as much as $4 billion.
In the secondary market, traders said tax-exempt yields were flat to slightly lower, in largely quiet trading, as all eyes were fixated on the new-issue market.
"We're mostly unchanged at this point," a trader in New York said. "There is still a bit of a positive tone out there, but I don't think it's enough to move the scale. I'd just call it flat at this point, but the tone is firm."
"People are just sort of focused on the new issues right now," a trader in Los Angeles said. "Not a whole lot going on in the secondary, but people are involved in the new issues. Overall though, we're maybe a tick better, if anything."
The Treasury market showed some losses yesterday. The yield on the benchmark 10-year Treasury note, which opened at 3.47%, was quoted near the end of the session at 3.52%. The yield on the two-year note was quoted near the end of the session at 1.04%, after opening at 1.01%. And the yield on the 30-year bond, which opened at 4.32%, was quoted near the end of the session at 4.36%.
As of Monday's close, the triple-A muni scale in 10 years was at 85.1% comparable Treasuries, according to Municipal Market Data. Additionally, 30-year munis were 105.3% of comparable Treasuries. Also, as of Monday's close, 30-year tax-exempt triple-A rated general obligation bonds were at 109.9% of the comparable London Interbank Offered Rate.
Elsewhere in the new-issue market yesterday, Citi priced $405.4 million of bonds for the Dallas Convention Center Hotel Development Corp., including $388.2 million of BABs. The BABs mature in 2042, yielding 7.09%, or 4.61% after the 35% federal subsidy, priced at par. The deal also contains a $17.2 million taxable, non-BAB series, which matures from 2015 through 2018, with yield ranging from 4.99% in 2015 to 5.58% in 2018, all priced at par. The credit is rated A2 by Moody's Investors Service and A-plus by Standard & Poor's.
Milwaukee competitively sold $228 million of revenue anticipation notes to various bidders. JPMorgan took the largest chunk of the deal, worth $100 million, with an effective rate of 0.5337%, and a 2% coupon. Second largest was Goldman, Sachs & Co. with $50 million, a 0.5337% effective rate, and a 2% coupon. Other winning bidders included Citi, Piper Jaffray, and Wachovia Bank NA. The credit is rated MIG-1 by Moody's, SP-1-plus by Standard & Poor's, and F1-plus by Fitch.
JPMorgan priced $101.9 million of airport system revenue refunding bonds for Broward County, Fla. The bonds mature from 2010 through 2020, with term bonds in 2024 and 2029. Yields range from 1.25% with a 2% coupon in 2010 to 5.48% with a 5.375% coupon in 2029. The bonds, which are callable at par in 2019, are rated A1 by Moody's and A-plus by both Standard & Poor's and Fitch.
Merrill Lynch priced $98.3 million of limited tax direct subsidy BABs for the Midland County, Tex., Hospital District. The bonds mature from 2018 through 2022, with term bonds in 2029 and 2039. Yields range from 5.26%, or 3.42% after the 35% federal subsidy, in 2018 to 6.44%, or 4.19% after the subsidy, all priced at par. The bonds were priced to yield between 175 and 235 basis points over the comparable Treasury yields. The credit is rated A1 by Moody's and AA by Fitch.
In economic data released yesterday, housing starts came in at 581,000 in July, after a revised 587,000 the previous month. Economists polled by Thomson Reuters had predicted 600,000 housing starts.
Building permits came in at 560,000 in July, after a revised 570,000 the previous month. Economists polled by Thomson Reuters had predicted 580,000 building permits.
The producer price index fell 0.9% in July, after a 1.8% increase the previous month. Economists polled by Thomson Reuters had predicted a 0.3% decline.
The core PPI dropped 0.1% in July, after a 0.5% increase the previous month. Economists polled by Thomson Reuters had predicted a 0.1% rise.
