NEW YORK – The municipal market was largely flat but carried a firmer tone amid fairly light secondary trading activity Monday, as the Texas Transportation Commission came to market with $1.5 billion of taxable Build America Bonds.
“There is still a firmer tone out there,” a trader in Los Angeles said. “There wasn’t a whole lot of movement today though. We’re probably up a basis point or two more in the belly of the curve, but it’s pretty flat overall.”
Leading the new-issue market, Goldman, Sachs & Co. priced $1.5 billion of taxable state highway fund first tier revenue BABs for the TTC.
The BABs mature in 2026 and 2030, yielding 5.028% and 5.178%, or 3.27% and 3.37% after the 35% federal subsidy, all priced at par. The bonds were priced to yield 100 and 115 basis points over the comparable Treasury yield.
Bonds maturing in 2026 contain a make-whole call at Treasuries plus 15 basis points. Bonds maturing in 2030 contain a make-whole call at Treasuries plus 20 basis points.
The credit is rated triple-A by both Moody’s Investors Service and Standard & Poor’s.
The Treasury market showed mild losses Monday. The benchmark 10-year note was quoted recently at 3.00% after opening at 2.99%. The 30-year bond was recently quoted at 4.02% after opening at 4.01%. The two-year note was recently quoted at 0.60% after opening at 0.59%.
The Municipal Market Data triple-A scale yielded 2.57% in 10 years and 3.67% in 20 years Friday, matching levels of 2.57% and 3.67% Thursday. The scale yielded 3.97% in 30 years Friday, matching 3.97% Thursday.
Monday’s triple-A muni scale in 10 years was at 85.7% of comparable Treasuries and 30-year munis were at 98.5%, according to MMD, while 30-year tax-exempt triple-A general obligation bonds were at 105.3% of the comparable London Interbank Offered Rate.
The market might find some solace in the estimated $7.18 billion of new volume expected this week, according to data from Ipreo LLC and The Bond Buyer, given the $4.43 billion new issuance, revised down from the anticipated $5.26 billion that actually priced last week, according to Thomson Reuters.
Aside from the TTC deal, an $800 million tax-exempt New York City general obligation sale could help jump-start the primary activity this week when they are priced for institutional investors Tuesday. Barclays Capital and Loop Capital Markets are the joint book-running senior managers on the deal.
In Monday’s retail pricing, bonds from the $161.9 million Series A mature from 2012 through 2033, with a term bond in 2037. Yields range from 0.72% with a 2% coupon in 2012 to 4.39% with a 4.25% coupon in 2037.
Bonds from the $638.1 million Series B mature from 2012 through 2022, with yields ranging from 0.72% with a 3% coupon in 2012 to 3.31% with a 3.25% coupon in 2022.
The city is rated Aa2 by Moody's and AA by Standard & Poor's and Fitch, with stable outlooks from all three agencies. The bonds are callable at par in 2020.
Also in the retail market Monday, Citi priced $200 million of GO debt for Maryland.
The bonds mature from 2013 through 2018, with yields ranging from 0.64% with a 2% coupon in 2013 to 2.19% with a 4% coupon in 2018.
The credit is rated triple-A by all three major ratings agencies.
Elsewhere in the primary this week, Columbus, Ohio is gearing up to issue $430 million of various-purpose GO bonds in a five-pronged deal that includes tax-exempt and taxable debt and should give a boost to a fairly quiet market in the Midwest.
Stifel, Nicolaus & Co. will offer the tax-exempt bonds to retail investors and take indications of interest on the BABs on Wednesday and price the deal on Thursday.
The deal has triple-A ratings from all three rating agencies. The largest portion consists of BABs - $266.4 million of unlimited-tax and $14 million of limited-tax bonds. Both BAB series will mature from 2016 to 2031.
Back in Texas, besides Monday’s mammoth state transportation deal, $300 million of Port of Houston unlimited-tax improvement and refunding bonds is also on tap. The bonds are expected to be priced on Wednesday by Bank of America Merrill Lynch.
The deal is rated triple-A by Moody's and Standard & Poor's. It is structured as $250 million of refunding and improvement bonds and $50 million of refunding debt.
In the competitive market, a three-pronged GO sale from Washington State totaling $717.5 million will command attention when it is offered on Wednesday.
The bonds are rated double-A plus by all three agencies. The debt is split into three series, the largest of which is $347.2 million of various-purpose GOs maturing from 2020 to 2035.
The deal also consists of $252.1 million of refunding GOs maturing from 2013 to 2022, as well as $118.2 million of taxable debt maturing from 2011 to 2020.
In economic data released Monday, new homes sales increased 23.6% in June to a seasonally adjusted annual rate of 330,000, snapping back from a record low number of sales in May, as the number of new homes for sale dropped to the lowest level in almost 42 years.
New home sales in May were revised lower to 267,000 from 300,000 reported last month. Records for this series date back to 1963. June’s figure was the second lowest total on record.
Economists expected 320,000 new home sales for the month, according to the median estimate from Thomson Reuters.
Visible Supply
The Bond Buyer’s 30-day visible supply rose $293.1 million to $11.330 billion. The total is comprised of $3.891 billion of competitive bonds and $7.439 billion of negotiated bonds.
Previous Session's Activity
The Municipal Securities Rulemaking Board reported 40,538 trades on 12,124 issues for volume of $13.96 billion. Most active was Puerto Rico 5.5s of 2020 bonds that traded 1,451 times at a high of par and a low of 98.625.
