The certificates of participation in two of the large negotiated deals scheduled to price this week offer a way for investors to diversify their portfolios, market participants say.
This diversification opportunity makes the deals - the $431.16 million Colorado Regional Transportation District and the $110.9 million Arizona School Facilities Board - attractive to investors, according to market participants.
"There is some value in subordination, not necessarily buying state GOs, but purchasing certificates of participation," Fred Bacani, Head of Fixed Income & Trading at Veritable LP in Newtown Square, Pa.
J.P. Morgan Securities is expected to price the Colorado RTD issue, which earned a Aa3 rating from Moody's Investors Service and an A from Standard & Poor's and Fitch Ratings.
Bank of America Merrill Lynch is scheduled to price the Arizona School Facilities Board deal on Tuesday, and the bonds have received an A1 rating from Moody's.
"I think potentially [the certificates of participation deals] will offer some incremental yield over GO structures," a trader in Virginia said. "[Certificates of participation] will be enticing for people looking for a little bit more yield. In today's market [yield] is usually a good thing."
The trader in Virginia did warn that the value of certificates of participation does depend on the strength of the underlying issuer.
"The COP structure is certainly one where we hold and we typically like in the right states," he said. "It really depends on what the underlying issuer is. If you like, have a good outlook on the underlying issuer and the COP is for an essential purpose like a school, you can get a diversification away from the straight GO structure and can pick up a little bit of yield."
A trader in New York said he sees demand for certificates of participation if the issuer has not come to market in some time.
JP Morgan Securities priced $213.2 million of New York State Environmental Facilities Corporation revolving refunds revenue bonds Tuesday. The deal received triple-A ratings from Moody's, S&P and Fitch.
Citigroup Global Markets will offer $130 million of San Bernardino tax and revenue anticipation notes. The deal received a MIG 1 from Moody's and an SP-1-plus from S&P.
Citigroup Global Markets will also price $104 million of Clark County, Nev., airport system junior subordinate lien revenue notes. The deal is rated A2 by Moody's.
Munis weakened Tuesday afternoon, with yields maturing in two to four years inching up as much as two basis points, according to the Municipal Market Data's triple-A scale. Yields on bonds maturing in five to 15 years jumped as much as three basis points, while those maturing beyond 2031 jumped as much as four basis points.
Treasuries were mixed Tuesday afternoon, with 30-year yields climbing three basis points to 3.40% and the 10-year benchmark rising two basis points to 2.56%. The two-year note slipped one basis point to 0.39%.
