Investors are divided over how the $160.9 million Austin, Texas, deal scheduled for Wednesday will be impacted by the $5.4 billion Texas tax and revenue anticipation note sale.
The short-term Texas notes that were sold on Tuesday, at record low rates, are highly desired, according to traders. A trader in New York predicted the Texas note deal will have an adverse impact on the Austin bond sale because investors looking to buy Texas credits will prefer the short maturity, more liquid notes.
"To the extent that people will want to put their money into this market, they will buy Texas notes over the Austin sale," he said. "The Texas note deal will go well because it's only one year and there is nowhere else to put you money.
The rate of 0.1326% was the lowest rate for the state's one-year notes since it began issuing TRANs in 1987, Comptroller Susan Combs said.
The deal is rated MIG-1 by Moody's Investors Service, SP-1-plus by Standard & Poor's, and F1-plus by Fitch Ratings. While the notes' ratings are strong, the trader in New York said the main appeal of the credit is its liquidity.
"Liquidity is more important that high ratings these days," he said.
The Austin deal is rated triple A, according to a trader in Texas.
The trader also noted, "the general amount of bids wanted within five years is up 90%, and that it was up 75% to 80% last week."
He said it is up this week in particular because traders are selling their short paper so they can buy into the Texas note deal.
The Austin deal will also provide traders with an opportunity to buy short paper, though the deal is stacked in the long end for each of its three parts.
The $104.6 million public improvement bond section of the deal is scheduled to have maturities ranging from 2017 to 2034, according to Bloomberg data. The $40.45 million certificates of obligation portion is expected to have maturities from 2015 to 2034. The final $15.8 million public property finance contractual obligations is scheduled to have maturities from 2015 to 2021.
A trader in Florida said he cannot imagine why the Texas note deal would interrupt the current market environment.
"The final maturity is less than two years out, the [Texas note deal] is a place for people to park their cash," he said.
He said investors "did not blink" when the deal came to market, and the Austin deal will go as if the Texas note sale never happened.
A trader in Chicago predicted that any deal coming to market this week will do well because everyone is so starved for supply.
