Tax-exempt yields were lower by about four basis points overall yesterday, while in the new-issue market California provided pricing guidance on its estimated $4 billion deal, which showed a range of between roughly 335 and 375 basis points over equivalent Treasuries.
The Golden State deal will contain billions of dollars of Build America Bonds, and is expected to be the largest BAB offering to date, and to serve as a benchmark for future transactions.
According to the guidance, bonds maturing in 2034 and 2039 are 375 basis points above 30-year Treasuries, bonds maturing in 2016 are 350 basis points over seven-year Treasuries, bonds maturing in 2015 are 355 basis points over seven-year Treasuries, bonds maturing in 2014 are 335 basis points over five-year Treasuries, and bonds maturing in 2013, which have a mandatory put, are 375 basis points over five-year Treasuries.
The California sale will be priced by a syndicate led by co-senior managers Goldman, Sachs & Co., JPMorgan, Barclays Capital, and Morgan Stanley. The state is rated A2 by Moody's Investors Service and A by Standard & Poor's and Fitch Ratings.
New York's Metropolitan Transportation Authority said yesterday that it has slightly increased the taxable Build America Bond portion of this week's $650 million dedicated tax fund deal while decreasing the tax-exempt portion by an equal amount.
The MTA boosted the BABs piece to $250 million from $200 million while reducing the tax-exempt portion by $50 million to $400 million. A retail order period begins today followed by institutional sales tomorrow.
On Monday, Morgan Stanley priced $1.375 billion of revenue BABs for the New Jersey Turnpike Authority. The bonds were the most actively traded security Monday, trading 184 times at a high price of 106.031 and a low of par value. The bonds, which mature in 2040, are priced at par to yield 7.41%. Yesterday, bonds from an interdealer trade of these bonds yielded 7.35%, six basis points lower than where they were priced Monday.
In its pricing Monday, the deal priced 370 basis points over the 30-year Treasury and 297 basis points higher than Monday's Municipal Market Data 30-year triple-A general obligation scale. The deal also contains a make-whole call of the 30-year Treasury value plus 50 basis points. The bonds are rated A3 by Moody's, A-plus by Standard & Poor's, and A by Fitch.
Last week, the University of Virginia sold one of the first BAB deals, worth $250 million, the largest such deal prior to Monday. That deal priced 255 basis points higher than that day's 30-year Treasury scale, and 154 basis points higher than that day's MMD triple-A GO yield curve.
In a small BAB issuance yesterday, De Pere, Wis., competitively sold $2.7 million of GO street improvement BABs to BMO Capital Markets with a true interest cost of 5.00%. The city had asked broker-dealers to submit both tax-exempt and taxable bids on the sale. They received one additional bid on the debt, from Cronin & Co., with a TIC of 5.70%.
The bonds mature from 2010 through 2019, with term bonds in 2021, 2024, and 2028. Coupons range from 2% in 2010 to 5.63% in 2028. None of the bonds were formally re-offered. The bonds, which are callable at par in 2019, are rated Aa3 by Moody's and AA by Standard & Poor's.
Yields in the secondary market were lower by about four basis points overall.
"There are people trying to get stuff done with these BABs. I'm not sure how successful they are, but I'm seeing a lot of markets," a trader in New York said. "I think overall, the market's more expensive today, but I've had to cheapen up a few offerings just to get some stuff done."
Elsewhere in the new-issue market yesterday, Siebert Brandford Shank & Co. priced $214.2 million of toll road senior-lien revenue bonds for Harris County, Tex. The bonds mature from 2016 through 2032, with a term bond in 2038. Yields range from 2.74% with a 4% coupon in 2016 to 4.94% with a 5% coupon in 2038. 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.
Wachovia Bank NA priced $200.4 million of school financing bonds for the Virginia Public School Authority. The bonds mature from 2010 through 2029, with yields ranging from 0.90% with a 5% coupon in 2010 to 4.48% with a 4.375% coupon in 2029. The bonds, which are callable at par in 2019, are rated Aa1 by Moody's and AA-plus by both Standard & Poor's and Fitch.
New Mexico competitively sold $196.3 million of capital projects GO bonds to Barclays Capital, with a TIC of 2.29%. The bonds mature from 2010 through 2019, with yields ranging from 1.14% in 2012 to 2.90% in 2019, all with 5% coupons. Bonds maturing in 2010 and 2011 were not formally re-offered. These bonds are not callable. The credit is rated Aa1 by Moody's and AA-plus by Standard & Poor's.
Also, Barclays Capital priced for retail investors $140.6 million of bonds for Pennsylvania State University. The bonds mature from 2010 through 2029, with yields ranging from 1.07% with a 3% coupon in 2011 to 4.41% with a 4.375% coupon in 2029. Bonds maturing in 2010, from 2021 through 2024, and from 2026 through 2028 were not offered during the retail order period. The bonds, which are callable at par in 2019, are rated Aa2 by Moody's and AA by Standard & Poor's.
The Treasury market showed some losses yesterday. The yield on the benchmark 10-year note, which opened at 2.84%, finished at 2.90%. The yield on the two-year note was quoted near the end of the session at 0.95% after opening at 0.91%. The yield on the 30-year bond, which opened at 3.69%, was quoted near the end of the session at 3.74%.
As of Monday's close, the triple-A muni scale in 10 years was at 101.1% of comparable Treasuries, according to MMD. Additionally, 30-year munis were 120.0% of comparable Treasuries. Also, as of the close Monday, 30-year tax-exempt triple-A rated GOs were at 132.1% of the comparable London Interbank Offered Rate.
The economic calendar was light yesterday.
