The municipal market weakened slightly Wednesday following two sessions of substantial losses, as more than $1 billion of Build America Bonds hit the primary with only two weeks remaining in the taxable bond program.
"I wouldn't exactly say we're better, because we're not, but it feels a little better," a trader in Los Angeles said. "Then again, being off a basis point or two certainly feels better than being down 10. It's still pretty messy out there, though, and I suspect that won't change until the new year."
In Wednesday's new-issue market, Pennsylvania competitively sold $650 million of debt, including $466.6 million of taxable BABs.
The BABs were sold to Barclays Capital. Pricing information was not available by press time. The BABs were set to mature from 2019 through 2030 and are callable at par in 2020.
The $183.4 million of tax-exempt GO bonds were sold to Citi, in two series.
Bonds from the $171.9 million series mature from 2012 through 2018, with yields ranging from 1.00% with a 5% coupon in 2013 to 2.77% with a 5% coupon in 2018. These bonds are not callable.
Bonds from the $11.5 million series mature from 2012 through 2030, with yields ranging from 0.65% with a 0.6% coupon in 2012 to 4.87% with a 4.75% coupon in 2030. These bonds are callable at par in 2020.
The credit is rated Aa1 by Moody's Investors Service and AA-plus by Fitch Ratings.
JPMorgan priced $576.1 million of taxable BABs for Massachusetts. The BABs mature in 2024, 2025, 2030, and 2040, with yields ranging from 5.053% in 2024, or 3.28% after the 35% federal subsidy, to 5.731% in 2040, or 3.73% after the subsidy.
The bonds were priced to yield between 105 and 175 basis points over the comparable Treasury yields. They contain a make-whole call at Treasuries plus 25 basis points and are rated triple-A by both Moody's and Standard & Poor's.
The San Francisco Public Utilities Commission competitively sold $523.5 million of debt, including $350 million of taxable BABs.
The credit is rated Aa2 by Moody's and AA-minus by Standard & Poor's.
The BABs mature in 2050, yielding 6.875% with a 6.95% coupon, or 4.47% after the 35% federal subsidy. The bonds were priced to yield 235 basis points over the 30-year Treasury yield and contain a make-whole call at Treasuries plus 25 basis points.
The $173.5 million series of tax-exempt revenue bonds was also sold in the competitive market, though no further information was available by press time. They are set to mature from 2017 through 2030.
The Municipal Market Data triple-A 10-year scale widened three basis points Tuesday to reach an 18-month high of 3.27%; the 20-year scale increased one basis point to a 21-month high of 4.52%; and the scale for 30-year debt rose one basis points to a 21-month high of 4.85%.
"We've basically gotten routed the last two days, but there seems to be a bit of stability right now," a trader in New York said. "There's still some weakness out there, but I don't think we're down more than a basis point or two."
Wednesday's triple-A muni scale in 10 years was at 93.4% of comparable Treasuries and 30-year munis were at 105.7%, according to MMD. Meanwhile, 30-year tax-exempt triple-A general obligation bonds were at 112.8% of the comparable London Interbank Offered Rate.
The Treasury market was mostly weaker Wednesday. The benchmark 10-year note finished at 3.52% after opening at 3.48%. The 30-year bond closed at 4.59%, after opening at 4.53%. The two-year note finished at 0.66% after also opening at 0.66%.
After reviewing initial pricing scales, the Metropolitan Water Reclamation District of Greater Chicago opted to put its $500 million, mostly BAB deal on hold until next year, even though that could mean a shift to a tax-exempt structure.
"The district will be back when the market is in a more 'normal' mode in the new year," said district treasurer Harold Downs. "It just didn't make sense to continue under the circumstances."
Downs said postponement was necessary because there was so much supply in the market that it forced prices down, preventing a realistic value for the district triple-A rating from the three rating services.
In economic data released Wednesday, consumer prices edged higher by 0.1% in November. Core consumer prices, excluding food and energy costs, also increased 0.1%, the first increase since July. October's consumer prices rose 0.2%, while the core was flat in the month.
Economists expected consumer prices would rise 0.2% and core prices would rise 0.1%, according to the median estimate from Thomson Reuters.
Industrial production increased 0.4% in November, the largest increase since July. Capacity utilization increased to 75.2%, the highest level since October 2008, from 74.9% in October.
Industrial production in October declined 0.2%, revised lower from a flat reading reported last month. October capacity utilization was revised higher from 74.7%.
Economists expected industrial production to increase 0.3% and for capacity utilization to be 75.0%.
