In an About-Face, Munis Finally Weaken

The municipal market was slightly weaker yesterday after nearly three weeks of firmness, while California priced for retail investors a portion of this week’s massive $4.5 billion general obligation bond sale.

JPMorgan priced for retail part of its $1.45 billion sale of taxable debt for California, which includes $250 million of Build America Bonds. The BAB component, which is slated to mature in 2024, is not being offered during the retail period.

Of the $1.2 billion GO refunding taxable series, the $250 million 2013 maturity is being offered to retail, yielding in a range of 3.50% to 3.75%, priced at par. The 2014 and 2019 maturities are not being offered to retail. Institutional pricing is set for today.

The bonds are rated Baa1 by Moody’s Investors Service and A by Standard & Poor’s.

Traders said tax-exempt yields in the secondary market climbed one or two basis points.

“We’re actually a little bit weaker,” a trader in New York said. “I can’t even recall exactly when the last time we cheapened up a bit was, it was definitely a good two or three weeks ago. But it was bound to happen eventually, yields can’t just keep pushing lower and lower indefinitely. We’re probably down a basis point, maybe two right now.”

“We’re definitely somewhat weaker,” a trader in Los Angeles said. “I think the market just got to a point where it needed to sort of about-face a bit. I’m not really sure you are going to start seeing a trend of weaker days in the near future, but it was definitely weaker today. We’re probably down a good two basis points at this point, maybe a little more, maybe a little less depending on what part of the curve you’re looking at. I think the steepest losses are out long.”

The Treasury market showed some losses yesterday. The yield on the benchmark 10-year note, which opened at 3.22%, finished at 3.26%. The yield on the two-year note finished at 0.91% after opening at 0.87%, while the yield on the 30-year bond, opened at 4.01% and finished at 4.07%.

The Treasury Department yesterday auctioned $39 billion of three-year notes with a 1 3/8% coupon at a 1.445% yield, a price of 99.80. The bid-to-cover ratio was 2.76. Federal Reserve banks also bought $305 million for their own account in exchange for maturing securities.

Also yesterday, the Municipal Market Data triple-A scale yielded 2.60% in 10 years and 3.46% in 20 years, following record low levels of 2.57% and 3.43%, respectively, Monday.

As of Monday’s close, the triple-A muni scale in 10 years was at 80.6% of comparable Treasuries, while 30-year munis were 96.0% of comparable Treasuries. Thirty-year tax-exempt triple-A rated general obligation bonds were at 97.7% of the comparable London Interbank Offered Rate.

Elsewhere in the new-issue market yesterday, RBC Capital Markets priced $530 million of GO bonds for triple-A rated Phoenix, including $201 million of taxable BABs. Pricing information on the sale was not available by press time.

Merrill, Lynch & Co. priced $535 million of revenue bonds for the California Health Facilities Financing Authority. The bonds mature from 2010 through 2024, with term bonds in 2029, 2034, and 2039. Yields range from 1.74% with a 3% coupon in 2011 to 5.05% with a 5% coupon in 2039. The bonds, which are callable at par in 2019, are rated A2 by Moody’s and A-plus by Fitch Ratings.

Citi priced just over $500 million for New York’s Metropolitan ­Transportation Authority, including $407 million of taxable BABs, along with $95 million of tax-exempt debt. The BAB portion was originally set for $500 million, but was reduced. MTA spokesman Aaron ­Donovan said the deal was reduced because “the MTA wanted to take an aggressive, firm posture with regard to this pricing as it does with all its pricing.”

The BABs were slated to mature from 2018 through 2020 and in 2022 and 2039. Pricing information was not available by press time.

North Carolina competitively sold $384.2 million of refunding GOs to JPMorgan with a true interest cost of 2.26%. The bonds mature from 2010 through 2020 and none were formally re-offered. The bonds, which are not callable, are rated triple-A by all three major agencies.

Merrill also priced $332 million of sales tax revenue refunding bonds for the Los Angeles County Metropolitan ­Transportation Authority. The bonds mature from 2010 through 2026, with yields ranging from 0.95% with a 2% coupon in 2011 to 3.61% with a 5% coupon in 2026. Bonds maturing in 2010 were decided via sealed bid. The bonds, which are callable at par in 2019, are rated Aa3 by Moody’s and AAA by Standard & Poor’s.

Siebert, Brandford, Shank & Co. priced $68.9 million of bonds for the Pennsylvania Turnpike Commission in multiple series. Bonds from the $15.1 million series A-1 mature from 2010 through 2023, with yields ranging from 0.60% with a 2% coupon in 2010 to 3.60% with a 4% coupon in 2023.

Bonds from the $6.6 million series A-2 mature from 2010 through 2019, with a term bond in 2023. Yields range from 0.60% with a 2% coupon in 2010 to 3.55% with a 5% coupon in 2023. Bonds from the $15.6 million series C of tax-exempt capital appreciation bonds mature from 2037 through 2039, yielding 5.29%, 5.30%, and 5.31%, respectively.

Bonds from the $27 million series D-1 mature from 2010 through 2027, with yields ranging from 1.02% with a 2% coupon in 2010 to 4.30% with a 5% coupon in 2027. Bonds from the $4.6 million series D-2 mature from 2011 through 2019, with a term bond in 2023. Yields range from 1.49% with a 2% coupon in 2011 to 4.20% with a 4% coupon in 2023.

All bonds are callable at par in 2019, except bonds from series C, which contain a make-whole call. The bonds are insured by Assured Guaranty Corp. The underlying credit is rated A1 by Moody’s and AA by Standard & Poor’s.

Jefferies & Co. priced $60.5 million of revenue bonds for Minnesota. The bonds mature from 2010 through 2025, with yields ranging from 1.00% with a 2% coupon in 2011 to 3.49% with a 4.5% coupon in 2025. Bonds maturing from 2014 through 2025 are insured by Assured Guaranty.

The remaining bonds are uninsured. The underlying credit is rated A1 by Moody’s, AA-plus by Standard & Poor’s, and AA-minus by Fitch. Bonds maturing in 2010 were decided via sealed bid. The bonds are callable at par  in 2019.

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