NEW YORK – The municipal market was firmer Friday amid a $3.275 billion taxable issuance from California comprised mostly of Build America Bonds as long-end yields declined for the second straight day following a pronounced rout that lasted nearly two weeks.
Traders said tax-exempt yields moved in anywhere from five to 10 basis points amid a fairly active secondary market, with investors taking advantage of bargain prices established during the sell-off.
“Yields are coming in again today, particularly on the long end,” a trader in New York said. “We’ve had a pretty intense sell-off here for the past couple of weeks, and now it looks like we hit bottom and are doing somewhat of an about-face. We’re probably better six to eight basis points on the long end right now, and maybe three to five better elsewhere.”
In the new-issue market Friday, Citi priced $3.275 billion of taxable debt for California, including $3.025 billion of taxable Build America Bonds.
The BABs mature in 2020, 2021, 2026, 2030, with a term maturity in 2040. Yields range from 5.581% priced at par in 2020, or 3.63% after the 35% federal subsidy, to 7.519% with a 7.6% coupon in 2030, or 4.89% after the subsidy.
The bonds were priced to yield between 270 and 400 basis points over the corresponding Treasury yields.
The deal also contains a $250 million taxable component, which matures in 2015, yielding 3.805% with a 3.92% coupon. These bonds were priced to yield 230 basis points over the comparable Treasury yield.
The bonds were originally scheduled to sell Thursday. Pricing was delayed until Friday so the issuer could disclose a lawsuit filed Tuesday.
The suit challenges a plan to sell and lease back from the private-entity owner 24 state buildings at 11 sites, according to the Treasurer’s office.
The delay also prompted the state to push back pricing its $10 billion pricing of revenue anticipation notes to Thursday from Wednesday.
The state expanded the amount of its taxable offering from $2.75 billion late Wednesday. The amount of the sale was increased from an originally scheduled $2 billion Wednesday. It also includes a $250 million taxable GO.
“The BABs program is a success story, and this sale provides yet another illustration BABs have helped,” said Tom Dresslar, spokesman for state Treasurer Bill Lockyer, in a release. “California finance infrastructure projects critical to our state’s future. In the process, they have created thousands of jobs for our families and saved taxpayers hundreds of millions of dollars.”
California's long-term GO ratings stand at A1 from Moody's and A-minus from Standard & Poor's and Fitch.
The Municipal Market Data's triple-A scale yielded 3.01% in 10 years Friday, down 10 basis points from Thursday’s 3.01%, while the 20-year scale yielded 4.05%, also down 10 basis points from Thursday. The scale for 30-year debt dropped 10 basis points to 4.40% Friday from 4.50% Thursday.
“You definitely have a lot of bargain-hunters out there, which is to be expected,” a trader in Los Angeles said. “There’s a lot of activity right now as people try to take advantage of these rates.”
Friday’s triple-A muni scale in 10 years was at 101.0% of comparable Treasuries and 30-year munis were at 103.5%, according to MMD. Meanwhile, 30-year tax-exempt triple-A general obligation bonds were at 111.7% of the comparable London Interbank Offered Rate.
The Treasury market was mostly firmer Friday. The benchmark 10-year note was quoted recently at 2.88% after opening at 2.90%. The 30-year bond was quoted recently at 4.24%, after opening at 4.29%. The two-year note was quoted recently at 0.51% after opening at 0.49%.
The economic calendar was light Friday.
Visible Supply
The Bond Buyer’s 30-day visible supply fell $796.6 million to $11.517 billion. The total is comprised of $1.677 billion in competitive bonds and $9.840 billion in negotiated bonds.
Previous Session’s Activity
The Municipal Securities Rulemaking Board reported 57,757 trades of 17,746 issues for total volume traded of $20.03 billion on Thursday. The most actively traded bond was taxable Baltimore 7s of 2035, which traded 373 times at a high of 101.254 and a low of 98.254.
