The municipal market was unchanged to slightly weaker yesterday, as New York’s Metropolitan Transportation Authority priced $750 million of Build America Bonds, following Wednesday’s mammoth California BAB deal.
The MTA deal was priced by JPMorgan in one term maturity in 2039, yielding approximately 7.34%, priced at par. According to the MTA’s press release: “The [$750 million of BAB] Series 2009C bonds were priced at 3.50% plus the 30-year Treasury rate of 3.836%. Yield for the Series 2009C bonds was 7.336% for the 2039 maturity, which is the equivalent tax-exempt yield of 4.768%. The all-in TIC for the Series 2009B and Series 2009C bonds was 4.92%.”
“We are very gratified by the market receptivity and attractive yields that this issue has produced,” said Gary Dellaverson, the MTA’s chief financial officer. “Further, by upsizing the issuance, the MTA was able to lock in these favorable yields for most, if not all, of its borrowing for the remainder of the year. This is important because it will take away much of the uncertainty of the MTA’s debt service budget, and also provide cost savings.”
The BAB deal followed Wednesday’s pricing of the MTA’s $500 million of tax-exempt dedicated tax fund bonds. Those bonds mature from 2010 through 2030, with a term bond in 2034. Yields range from 1.20% with a 3% coupon in 2010 to 5.10% with a 5% coupon in 2034. The bonds, which are callable at par in 2019, are rated AA by Standard & Poor’s and A-plus by Fitch Ratings.
“Everyone is clamoring over these BABs,” a trader in New York said.
The California and MTA BAB deals were the two most actively traded securities at press time yesterday, according to trades reported by the Municipal Securities Rulemaking Board. A total of 607 trades of the California 7.5s of 2034 were reported at an average yield of 7.18%, 25 basis points lower than where it was priced Wednesday. And the MTA 7.34s of 2039 traded 305 times at an average yield of 7.28%, six basis points lower than where it priced yesterday.
“The ones that have freed up so far have had significant rallies, 25, 30 basis point rallies, so there is significant pent-up demand out there,” said Evan Rourke, portfolio manager at Eaton Vance. “And when you look at them on a taxable basis and you compare them to say, I know we looked at the California, and at that time, it was trading cheaper than comparable maturity Mexico bonds.”
Yields in the secondary market, which had dropped steadily this week, leveled off yesterday, to mostly unchanged with a weaker tone.
“It’s all been really kind of a rally driven off the BABs, and that’s the heart of it,” Rourke said. “The expectation is that we could lose a lot of supply. It started to fade today for the first time, where you started to see the market give up a little bit, and we saw a definite slowdown. You saw a little resistance to the new levels.”
California on Wednesday priced $6.85 billion of taxable general obligation bonds, including $5.23 billion of BABs, to fund infrastructure projects. The deal marks the largest BAB deal to date by far, and was upsized substantially from an expected $4 billion. Interest on the entire deal is federally taxable, but exempt from state income taxes.
The bonds were priced by a syndicate led by co-senior managers Goldman, Sachs & Co., JPMorgan, Barclays Capital, and Morgan Stanley.
The bonds went free to trade Wednesday, and still managed to be the most actively traded security of the session yesterday, trading 401 times at a high of 106.833 and a low of 100.506.
Elsewhere in the new-issue market yesterday, Barclays Capital priced $600 million of aviation revenue bonds for Miami-Dade County in two series. Bonds from the $378.6 million Series A mature from 2011 through 2029, with term bonds in 2036 and 2041. Yields range from 2.50% with a 3% coupon in 2011 to 5.73% with a 5.5% coupon in 2041. Bonds from the $221.4 million Series B priced identically, with the exception of the addition of a 2039 maturity, which yields 5.38% with a 5.125% coupon. Portions of bonds maturing from 2017 through 2041 are insured by Assured Guaranty Corp. The remaining bonds are uninsured, and rated A2 by Moody’s Investors Service, A-minus by Standard & Poor’s, and A by Fitch.
JPMorgan priced $581.3 million of GO bond anticipation notes for Connecticut. The $353.1 million series of Bans matures in 2010, yielding 0.47% with a 2% coupon. Bans from the $228.2 million series contain a split maturity in 2011, yielding 1.15%, with coupons of 2% and 4%. The GO credit is rated Aa3 by Moody’s and AA by Standard & Poor’s and Fitch. The short-term credit is rated MIG-1 by Moody’s, SP-1-plus by Standard & Poor’s, and F1-plus by Fitch.
The Treasury market showed little movement yesterday. The yield on the benchmark 10-year note, which opened at 2.94%, was quoted near the end of the session at 2.93%. The yield on the two-year note was quoted near the end of the session at 0.95% after opening at 0.96%. The yield on the 30-year bond, which opened at 3.80%, was quoted near the end of the session at 3.81%.
As of Wednesday’s close, the triple-A muni scale in 10 years was at 94.3% of comparable Treasuries, according to MMD. Additionally, 30-year munis were 113.6% of comparable Treasuries. Also, as of the close Wednesday, 30-year tax-exempt triple-A rated GOs were at 126.8% of the comparable London Interbank Offered Rate.
