The municipal market was mixed yesterday, as the Bay Area Toll Authority led an active primary market with $1.3 billion of taxable Build America Bonds.
In the new-issue market, Citi priced BATAs $1.3 billion BAB offering, which matures in 2049. The bonds yield 6.263%, priced at par, or 4.07% after the 35% federal subsidy. The bonds are rated Aa3 by Moody’s Investors Service and AA by Standard & Poor’s, and AA-minus by Fitch Ratings.
Barclays Capital was set to continue retail pricing on a $3.5 billion refunding offering of California economic recovery bonds, ahead of planned institutional pricing today. Day two’s retail pricing data was unavailable by press time, but market sources indicated that the state reduced yields in their maturities through 2017 by about five basis points due to demand. Tuesday, in the first day of retail pricing, the state sold $1.76 billion to retail, 50.4% of the total. The state treasurer’s office said, “expected yields quoted to investors ranged from 2.55% for the 2013 maturity to 5% for the 2022 maturity.”
Bonds maturing from 2013 through 2017, 2019, 2022, and bonds with a mandatory 2014 put date and 2023 nominal maturity date were offered to retail investors. The 2013 through 2017 maturities sold out Tuesday.
Elsewhere in California, Citi priced $569 million of bonds for the California Health Facilities Finance Authority for Catholic Healthcare West. Pricing information on the deal was not available by press time. The bonds were slated to mature from 2010 through 2025, and are rated A2 by Moody’s, A by Standard & Poor’s, and A-plus by Fitch.
Connecticut came to market with $550 million of special tax obligation debt in three series, priced by Siebert Brandford Shank & Co., including $304.4 million of taxable BABs. Those bonds mature from 2020 through 2024, with term bonds in 2029. Yields range from 4.855% in 2020, or 3.16% after the 35% federal subsidy, to 5.74% in 2029, or 3.73% after the subsidy. The bonds feature a make-whole call at Treasuries plus 30 basis points. The bonds were priced to yield between 145 and 195 basis points over the comparable Treasury yields. Pricing information was not available on the two tax-exempt series. Bonds from the $195.6 million Series A were set to mature from 2010 through 2019, with a term bond in 2029, and bonds from the $49.8 million Series C mature from 2010 through 2014.
Traders said tax-exempt yields in the secondary market were mixed yesterday.
“It’s a bit of a mixed bag out there,” a trader in San Francisco said. “The long end is cheapening up, maybe to the tune of three or four basis points, but you’re also seeing some gains on the short end, maybe two or three basis points. So I think we’re pretty mixed overall, pretty much dependent on what you’re trading. But it’s actually pretty quiet in the secondary. Everyone is focused on the new issues.”
“The business is a little slower than I’d like, and I think because there’s so much new issuance out there, everyone just has their hands full with that,” a trader in Los Angeles said. “It looks like the longer bonds are going wanting, while the shorter maturities are doing quite well.”
The Treasury market showed some gains yesterday. The yield on the benchmark 10-year note opened at 3.45% and was quoted near the end of the session at 3.41%. The yield on the two-year note opened at 0.98% and was quoted near the end of the session at 0.95%. The yield on the 30-year bond was quoted near the end of the session at 4.26% after opening at 4.27%.
The Treasury Department auctioned $41 billion of five-year notes, with a 2 3/8% coupon, a 2.388% high yield, a price of roughly 99.94. The bid-to-cover ratio was 2.63. Federal Reserve banks bought $1.01 billion for their own account in exchange for maturing securities.
Yesterday’s Municipal Market Data triple-A scale yielded 3.04% in 10 years and 3.77% in 20 years, following levels of 3.05% and 3.76%, respectively, ON Tuesday. The scale yielded 4.18% in 30 years yesterday, following Tuesday’s level of 4.13%.
As of Tuesday’s close, the triple-A muni scale in 10 years was at 86.9% of comparable Treasuries, according to MMD, and 30-year munis were 95.2% of comparable Treasuries. Thirty-year tax-exempt triple-A rated general obligation bonds were at 98.6% of the comparable London Interbank Offered Rate.
Also in the new-issue market yesterday, Morgan Stanley priced $323.1 million of taxable BABs for the Kentucky State Property and Buildings Commission. The BABs mature from 2015 through 2019, with term bonds in 2022 and 2029. Yields range from 4.077% in 2015, or 2.65% after the subsidy, to 6.155% in 2029, or 4.00% after the subsidy. The bonds were priced to yield between 145 and 215 basis points over the comparable Treasury yields. The bonds are also subject to make-whole redemption at Treasuries plus 25 basis points for bonds due from 2015 through 2019, and plus 30 basis points for the terms due in 2022 and 2029. They are subject to extraordinary make-whole redemption at Treasuries plus 100 basis points. The credit is rated Aa3 by Moody’s, A-plus by Standard & Poor’s, and AA-minus by Fitch.
Merrill Lynch & Co. priced $300 million of taxable BABs for the Missouri Highways and Transportation Commission. The bonds mature from 2017 through 2025, with a term in 2029. Yields range from 4.31%, or 2.80% after the 35% federal subsidy, in 2017 to 5.63%, or 3.66% after the subsidy, in 2029, all priced at par. The bonds were priced to yield between 90 and 180 basis points over comparable Treasury yields.
The Port Authority of New York and New Jersey competitively sold $300 million of consolidated bonds to Merrill Lynch with a true interest cost of 4.75%. The bonds mature from 2030 through 2035, with term bonds in 2037 and 2039. Yields range from 4.43% with a 4.25% coupon in 2030 to 4.75% with a 4.5% coupon in 2037. Bonds maturing from 2031 through 2035 and in 2039 were not formally re-offered. The bonds, which are callable at par in 2019, are rated Aa3 by Moody’s and AA-minus by both Standard & Poor’s and Fitch.
In economic data released yesterday, new home sales unexpectedly fell 3.6% in September as the number of new homes available for sale fell to the lowest level in almost 27 years. Buyers purchased new homes at a 402,000 annual rate following a downwardly revised 417,000 rate in August. Economists expected a rate of 440,000 new home sales in September, according to Thomson Reuters.
Durable goods orders rose 1.0% in September, in line with economists’ estimates. New orders for durable goods excluding transportation rose 0.9%, gaining for the fourth time in five months, following a 0.4% decline in August. Economists expected durable goods orders to rise 1.0% in the month and for orders excluding transportation goods to rise 0.7%, according to the median forecast from Thomson Reuters.
