The municipal market was firmer yesterday as Washington State came to market with a $1.16 billion taxable Build America Bond sale.
JPMorgan priced $1.16 billion of taxable motor vehicle fuel-tax general obligation BABs for Washington that mature from 2015 through 2024, with term bonds in 2031, 2033, and 2040.
Yields range from 2.76% in 2015, or 1.79% after the 35% federal subsidy, to 5.14% in 2040, or 3.34% after the subsidy, all priced at par.
The bonds were priced to yield between 75 and 135 basis points over the comparable Treasury yields.
On Monday, when indications of interest were taken on the deal, it yielded between 70 and 130 basis points over comparable Treasuries.
The Washington deal is the state’s largest-ever bond issue, and only the second negotiated one from the state treasurer’s office since 1996.
It is also the fourth-largest BAB deal of 2010, and the highest-rated of all of this year’s billion-dollar-plus offerings, according to Thomson Reuters.
Both Standard & Poor’s and Fitch Ratings rate the bonds AA-plus. Moody’s Investors Service rates them an equivalent Aa1.
Traders said tax-exempt yields in the secondary market were lower by anywhere from two to five basis points, in light to moderate trading activity.
“The market is very strong, very aggressive,” a trader in Chicago said. “It is a little quiet because there isn’t a lot of paper in the marketplace, but more and more is coming in. We are up probably two to five basis points.”
“While it is up, there is not a tremendous amount of order flow, but I would say three or four basis points better,” a trader in Los Angeles said.
“There haven’t been a lot of trades; the breadth of the market hasn’t been there. We haven’t participated anywhere near on the upside that the Treasuries and the corporates have, so we probably should not go back down either.”
“There is a lot of money coming due, especially for coupon payments in June or July payments,” the trader added. “There hasn’t been a lot of new issuance. I think that it is, in part, what’s holding the market back.
“If there is new issuance, people would feel a little more confident at what level the secondary should be in. But because there hasn’t been, they basically are kind of directionless, which the market does not like. It does not want to participate in governments on the way up.”
The Treasury market was mixed yesterday. The benchmark 10-year Treasury note was quoted near the end of the session at 3.17% after opening at 3.20%.
The 30-year Treasury bond was quoted near the end of the session at 4.07% after opening at 4.08%.
The two-year Treasury note was quoted near the end of the session at 0.78% after opening at 0.73%.
“The government market is certainly out-trading us and has been doing so for the last couple of days,” a trader in New York said.
The Municipal Market Data triple-A scale yielded 2.76% in 10 years and 3.61% in 20 years yesterday, following levels of 2.81% and 3.65% on Monday. The scale yielded 3.93% in 30 years yesterday, versus 3.96% on Monday.
Monday’s triple-A muni scale in 10 years was at 87.3% of comparable Treasuries and 30-year munis were at 96.6%, according to MMD, while 30-year tax-exempt triple-A general obligation bonds were at 101.8% of the comparable London Interbank Offered Rate.
Elsewhere in the new-issue market yesterday, JPMorgan priced $403.9 million of pollution control revenue refunding bonds for the split-rated New Mexico Public Service Co. through two conduit issuers. The credit is rated Baa3 by Moody’s and BB-plus by Standard & Poor’s.
A total of $343.55 million of the bonds were priced through conduit Farmington, N.M., in six series.
Bonds from the $40.05 million Series A mature in 2040, yielding 5.20% priced at par. The bonds are not callable.
Bonds from the $37.0 million Series B mature in 2040, yielding 4.75% priced at par. The bonds are not callable.
Bonds from the $65.0 million Series C mature in 2040, yielding 5.90% priced at par. The bonds are callable at par in 2020
Bonds from the $130.0 million Series D mature in 2040, yielding 5.90% priced at par. The bonds are callable at par in 2020.
Bonds from the $60.0 million Series E mature in 2040, yielding 5.90% priced at par. The bonds are callable at par in 2020.
Bonds from the $11.5 million Series F, which are subject to the alternative minimum tax, mature in 2040, yielding 6.25% priced at par. The bonds are callable at par in 2020.
Additionally, $60.3 million was priced through Maricopa County, Ariz., in two series.
Bonds from the $39.3 million Series A mature in 2043, yielding 4.00%, priced at par. The bonds are not callable.
Bonds from the $21.0 million Series B mature in 2043, yielding 5.20% priced at par. The bonds are not callable.
In economic data released yesterday, the consumer confidence index jumped to 63.3 in May from a downwardly revised 57.7 last month.
Economists polled by Thomson Reuters predicted the index would be 59.0.
Priti Patnaik contributed to this column.
