Market Close: Large Deals Arrive Amid Stronger Tone and Looming Uncertainty

A stronger tone pervaded the municipal market Tuesday as many large deals arrived and underwriters accelerated by a day pricing for the week’s largest issue.

“The market held its own today,” a trader in Los Angeles said. “New issues were attractively priced to move. The secondary was a little quieter, but I definitely think the tone is feeling better.”

But market watchers also mentioned a lingering element of caution. They remain uncertain about how Federal Reserve Chairman Ben Bernanke’s Humphrey-Hawkins testimony before the House Financial Services Committee scheduled for Wednesday morning will affect the bond markets. His announcement last month led to a large selloff, while language he issued in response to that calmed the markets through a rally.

“Everyone is waiting to find out which Bernanke will testify tomorrow,” the trader said. “So, there’s a little bit of caution, still.”

An estimated $9.65 billion of new volume should reach the market this week, Ipreo LLC and The Bond Buyer report. Last week, a revised $5.38 billion arrived, according to Thomson Reuters.

In the negotiated market, Goldman, Sachs & Co., moved up by a day pricing for the week’s biggest deal: a total of $2.92 billion in Grand Parkway Transportation Corp. system toll revenue bonds in tax-exempt and taxable deals.

The tax-exempt deal, $2.45 billion divided into four series, arrived with two ratings. The first series, $200 million of toll revenue bonds is rated BBB by Standard & Poor’s and BBB-plus by Fitch Ratings. Yields range from 5.24% with a 5.125% coupon in 2043 to 5.59% with a 5.50% coupon in 2053. The bonds are callable at par in 2023.

The second series, $1.14 billion of toll revenue bonds, was rated AA by Standard & Poor’s and AA-minus by Fitch. Yields ranged from 5.10% with a 5.25% coupon in 2051 to 5.18% with a 5.00% coupon in 2053. The bonds are callable at par in 2023.

The third series, $278 million of convertible capital appreciation bonds, also came rated AA by S&P and AA-minus by Fitch. They mature between 2029 and 2048, with yields to maturity of between 4.95% and 5.85%. The bonds are callable at par in 2028.

The fourth series, $836.5 million of toll revenue tender bonds, also came rated AA by S&P and AA-minus by Fitch. They yielded 0.55% with a 2.00% coupon in 2017. Yields were lowered by as much as five basis points in repricing.

The $468.5 million taxable deal, rated AA by S&P and AA-minus by Fitch, arrived in two series. The first series, $106.9 million of toll revenue tender bonds, matures in 2017 with a mandatory tender date of 2014 and was priced to yield 0.85% with a 1.00% coupon.

The second series, $361.6 million of toll revenue bonds, matures in 2042 and is priced to yield 160 basis points over the comparable Treasury yield. It carries a 3.125% coupon that matures in 2043.

By press time traders hadn’t gotten a read on the deal’s progress, though some said it arrived somewhat cheaper than predicted.

Piper Jaffray & Co. priced $223.4 million of University of Connecticut general obligation bonds after two days of retail. The bonds were rated Aa3 by Moody’s Investors Service, AA by Standard & Poor’s and AA-minus by Fitch.

Yields on the first series of $172.3 million ranged from 0.50% with a 4.00% coupon in 2015 to 4.08% with a 5.00% coupon in 2032. The bonds are callable at par in 2023.

Yields in the second series of $51.2 million ranged from 0.40% with a 4.00% coupon in 2015 to 3.13% with a 5.00% coupon in 2024. The bonds are callable at par in 2023.

Yields were lowered two basis points at six and seven years from retail pricing in both series.

In the competitive market, Citi won $616.9 million of Dormitory Authority of the State of New York state personal income tax general purpose revenue bonds. The credits are rated AAA by Standard & Poor’s and AA by Fitch. Yields range from 0.45% with a 5.00% coupon in 2015 to 4.43% with a 5.00% coupon in 2043. The bonds are callable at par in 2023.

Tax-exempt yields maintained firmness in the belly of the curve throughout the day, according to one market gauge. Yields were steady through two years and beyond 14 years. Those between three and 14 years were up to five basis points lower, with the greatest strength at five and six years.

The 10-year triple-A tax-exempt fell two basis points Tuesday to 2.64%, according to the Municipal Market Data scale read. The 30-year yield held at 4.00%, while the two-year steadied at 0.45% for the fourth session.

Yields on the Municipal Market Advisors 5% scale ended mostly firmer on Tuesday, falling between one and five basis points at various parts of the curve. The 10-year yield fell two basis points to 2.82%. The 30-year yield held steady at 4.11%. The two-year remained at 0.54% for the fourth straight session.

Treasuries ended Tuesday slightly stronger across the curve. The benchmark 10-year yield slipped two basis points to 2.53%. The two-year yield inched down one basis point to 0.33% and the 30-year yield fell three basis points to 3.58%.

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