New issues were at center stage yesterday as the week's largest deals totaling more than $3 billion came to market. Meanwhile, yields were unchanged in the secondary with some signs of weakness.
The Los Angeles Unified School District came with the week's largest transaction, pricing $1.74 billion of taxable and tax-exempt general obligation debt, including $1.25 billion of taxable Build America Bonds.
Morgan Stanley priced the BABs component, which matures in 2034, at par to yield 6.758%, or 4.39% after the 35% federal subsidy.
The bonds were priced to yield 200 basis points over the comparable Treasury yield, and are subject to make-whole redemption at Treasuries plus 30 basis points.
Citi priced the tax-exempt series, comprising $491.6 million of GOs.
The bonds mature in 2010, and from 2018 through 2026, with term bonds in 2028 and 2034. Yields range from 3.26% with a 5% coupon in 2018 to 4.84% with a 5.25% coupon in 2034. Bonds maturing in 2010 were decided via sealed bid. The bonds are callable at par in 2020.
Bonds from the series were priced with coupons of 4%, 5%, and 5.25%. The 4% coupon maturities, in 2020 and 2021, yielded 66 and 67 basis, respectively, points over Wednesday's Municipal Market Data triple-A GO yield curve. The 5% coupon maturities, in 2018, 2019, and from 2022 through 2026, ranged from 71 to 75 basis points over the scale. And the 5.25% coupon maturities, in 2028 and 2034, both yielded 80 basis points over the curve.
The credit is rated Aa3 by Moody's Investors Service and AA-minus by Standard & Poor's.
Morgan Stanley also priced $1.5 billion of general obligation bonds for Illinois.
The bonds mature from 2011 through 2025, with yields ranging from 1.27% with a 2% coupon in 2012 to 4.55% with a 5% coupon in 2025. Bonds maturing in 2011 will be decided via sealed bid. Yields were selectively lowered by two to five basis points at re-pricing. The bonds are callable at par in 2020.
Portions of bonds maturing from 2015 through 2023 were insured by Assured Guaranty Municipal Corp. The remainder of the deal is uninsured. The underlying credit is rated A2 by Moody's, A-plus by Standard & Poor's, and A by Fitch Ratings.
The majority of the deal was priced with 5% coupons. Bonds from 2013 through 2024 also contained split maturities, with each maturity from 2015 through 2023 containing an uninsured piece with a 5% coupon, and an AGM-backed piece.
Among the 5% coupon paper, which goes from 2012 through 2025, yields ranged from 67 to 123 basis points over Wednesday's MMD triple-A GO yield curve.
Among the AGM-insured paper, which goes from 2015 through 2023, yields range from 100 to 113 basis points over the scale.
In the secondary market, traders said tax-exempt yields were flat to slightly higher.
"It's cheaper maybe one to two basis points just to get things done, but you'd be pushed to find a serious set of trades to show that. It doesn't really feel weaker on the whole," a trader in New York said. "Everyone wants short paper right now. On the long end, if you spread it decently, you've got it."
"It's still somewhat unchanged inside of about 20 years, but out long, I think we're definitely down a good basis point or so," a trader in Los Angeles said.
The Treasury market showed some losses yesterday. The benchmark 10-year note finished at 3.80% after opening at 3.73%. The yield on the two-year note finished at 0.88% after opening at 0.84%. The yield on the 30-year bond finished at 4.75% after opening at 4.70%.
Meanwhile, the Federal Reserve raised the discount rate from 0.5% to 0.75%, effective today.
The MMD triple-A scale yielded 2.89% in 10 years and 3.83% in 20 years yesterday, following levels of 2.87% and 3.81% on Wednesday. The scale yielded 4.19% in 30 years yesterday, up from 4.18% Wednesday.
Wednesday's triple-A muni scale in 10 years was at 76.7% of comparable Treasuries and 30-year munis were at 88.7%, according to MMD, while 30-year tax-exempt triple-A general obligation bonds were at 92.3% of the comparable London Interbank Offered Rate.
Elsewhere in the new-issue market yesterday, Bank of America Merrill Lynch priced $527.3 million of Kentucky Economic Development Finance Authority hospital revenue bonds in two series.
Bonds from the $460.6 million Series A mature from 2013 through 2021, with term bonds in 2023, 2025, 2030, 2040, and 2045. Yields range from 3.10% with a 5% coupon in 2013 to 6.75% with a 6.5% coupon in 2045. The bonds are callable at par in 2020.
Bonds from the $66.7 million Series B mature from 2013 through 2023, with term bonds in 2025, 2030, and 2040. Yields range from 3.10% with a 4% coupon in 2013 to 6.625% with a 6.375% coupon in 2040. The bonds are callable at par in 2015. The credit is rated Baa2 by Moody's and BBB-plus by Fitch.
