The municipal market endured another session of pronounced losses Wednesday as continued uncertainty over the future of Build America Bonds helped boost yields 10 to 12 basis points, driving the 20-year scale to a 17-month high.
"There's still a very palpable fear of the unknown out there with regard to the future of the BAB program," a trader in Los Angeles said. "There's still some optimism something could get done, but it seems like the sentiment is shifting back towards an expectation that the program will be done in about three weeks. Today, we're picking up from [Tuesday] and just getting routed out there."
In the new-issue market Wednesday, Goldman, Sachs & Co. priced $1.8 billion of taxable BABs for the New Jersey Turnpike Authority. The deal was upsized by $350 million from the originally planned $1.5 billion.
The bonds mature in 2041 and yield 7.102%. They are priced at par, or 4.62% after the 35% federal subsidy. The bonds were priced to yield 262.5 basis points over the 30-year Treasury yield. The credit is rated A3 by Moody's Investors Service, A-plus by Standard & Poor's, and A by Fitch Ratings.
The Municipal Market Data triple-A scale yielded 3.00% in 10 years on Wednesday, up 13 basis points from Tuesday's 2.87% to its highest level since Nov. 18, when it reached 3.01%. The 20-year scale rose 12 basis points to a 4.23% yield, its highest since July 7, 2009 when it was also 4.23%. The scale for 30-year debt widened 14 basis points to 4.62%, matching its highest mark since Nov. 17.
"The shorter and intermediate maturities are playing a little catch-up after mostly sitting out [Tuesday's] sell-off," a trader in New York said Wednesday. "That's not to say the long end isn't cheapening up considerably as well, because it is."
Wednesday's triple-A muni scale in 10 years was at 92.6% of comparable Treasuries and 30-year munis were at 103.8%, according to MMD. Meanwhile, 30-year tax-exempt triple-A general obligation bonds were at 111.6% of the comparable London Interbank Offered Rate.
The Treasury market was weaker Wednesday. The benchmark 10-year note was quoted near the end of the session at 3.23% after opening at 3.12%. The 30-year bond was quoted near the end of the session at 4.43% after opening at 4.37%. The two-year was quoted near the end of the session at 0.61% after opening at 0.53%.
The Treasury Department auctioned $21 billion of 10-year notes with a 2 5/8% coupon at a 3.340% high yield and a price of 94.0. The bid-to-cover ratio was 2.92. Federal Reserve banks bought $305.45 million for their own accounts in exchange for maturing securities.
The muni sell-off prompted the San Francisco Public Utilities Commission to postpone its competitive pricing of $173.5 million of tax-exempt bonds and $350 million of BABs from Wednesday to next week.
Elsewhere in the new-issue market, Bank of America Merrill Lynch priced $252.2 million of taxable BABs for the University of Missouri Curators. The bonds mature in 2041, yielding 5.792% at par, or 3.76% after the 35% federal subsidy. They were priced to yield 135 basis points over the 30-year Treasury yield. The debt is rated Aa1 by Moody's and AA-plus by Standard & Poor's.
Goldman Sachs priced $230 million of taxable and tax-exempt debt for Ohio, including $46 million of taxable BABs. The BABs mature in 2019 and 2020, yielding 4.844% and 4.994%, both priced at par, or 3.15% and 3.25% after the 35% federal subsidy.
The bonds, which were priced to yield 160 and 175 basis points over the 10-year Treasury yield, contain a make-whole call at Treasuries plus 30 basis points. The $184 million tax-exempt series matures from 2011 through 2018, with yields ranging from 0.83% with a 3% coupon in 2012 to 2.88% with a 5% coupon in 2018. Bonds maturing in 2011 were decided via sealed bid. The bonds are not callable. The credit is rated Aa1 by Moody's, AA by Standard & Poor's and AA-minus by Fitch.
Morgan Stanley priced $226.1 million of taxable and tax-exempt debt for New York's Westchester County Health Care Corp., including $68.8 million of taxable BABs. The $37.4 million Series A BABs mature in 2040, yielding 8.572% priced at par, or 5.57% after the 35% federal subsidy.
The bonds were priced to yield 414 basis points over the 30-year Treasury yield and contain a make-whole call at Treasuries plus 55 basis points.
The $31.4 million BAB Series C-1 also matures in 2040, yielding 8.572% priced at par, or 5.57% after the 35% federal subsidy. The bonds were priced to yield 414 basis points over the 30-year Treasury yield and contain a make-whole call at Treasuries plus 55 basis points.
The $124.9 million tax-exempt Series B matures from 2011 through 2020, with term bonds in 2030 and 2037. Yields range from 2.77% with a 4% coupon in 2012 to 6.35% with a 6.125% coupon in 2037. The bonds are callable at par in 2020.
The $32.4 million tax-exempt Series C-2 matures in 2037, yielding 6.35% with a 6.125% coupon. These bonds are callable at par in 2020. The credit is rated A3 by Moody's and BBB by Standard & Poor's.
Barclays Capital priced $145.8 million of limited-tax GO bonds for Nevada in two series. Yields were selectively raised by up to 12 basis points at re-pricing.
Bonds from the $121.9 million Series C mature from 2013 through 2029, with yields ranging from 1.54% with a 3% coupon in 2013 to 5.10% with a 5% coupon in 2029. The bonds are callable at par in 2020.
Bonds from the $23.9 million Series D mature from 2015 through 2020, with term bonds in 2025, 2030, and 2038. Yields range from 2.22% with a 3% coupon in 2015 to 5.31% with a 5% coupon in 2038. The bonds are callable at par in 2020.
The credit is rated Aa1 by Moody's and AA-plus by Standard & Poor's and Fitch.
In economic news Wednesday, mortgage-loan application volume slipped 0.9% on a seasonally adjusted basis the week ended Dec. 3, according to a weekly survey released Wednesday by the Mortgage Bankers Association.
The refinance index fell 1.4% from the previous week to post its fourth consecutive decline and is at its lowest level since June. The purchase index rose a third straight week, climbing 1.8% to its highest level since May.
