The municipal market was firmer yesterday, lagging a Treasury rally, as the Los Angeles Department of Water and Power priced $616 million of taxable Build America Bonds.
“The market is pretty strong,” a trader in Chicago said. “We’re not quite keeping pace with Treasuries because of certain political aspects, but I would say the market is strong. We moved a lot of paper today. It is probably up a good three or four basis points, particularly in 10 years and under, and as we get to the heart of the curve, the 10-to-20 space, its up two or three.”
“There are some gains out there,” a trader in New York said. “It seems to be more pronounced in the 10-year range or so. Maybe three or four basis points better in that range. Overall, I’d say we’re a good two or three basis points better, though it’s maybe only one or two on the long end.”
In the new-issue market, Morgan Stanley priced $616 million of taxable BABs for LADWP.
The bonds mature in 2039 and 2040, yielding 5.716% in 2039, or 3.72% after the 35% federal subsidy, and 6.166% in 2040, or 4.01% after the subsidy, both priced at par.
Bonds maturing in 2039 contain a make-whole call at Treasuries plus 25 basis points. Bonds maturing in 2040 are callable at par in 2020, and contain a make-whole call at Treasuries plus 25 basis points prior to the call.
The credit is rated Aa3 by Moody’s Investors Service and AA-minus by both Standard & Poor’s and Fitch Ratings.
The Treasury market rallied yesterday on a flight to safety over continued concerns regarding the European debt crisis. The benchmark 10-year note finished at 3.25% after opening at 3.37%. The 30-year Treasury bond finished at 4.12% after opening at 4.24%. The two-year note yield finished at 0.73% after opening at 0.78%.
The triple-A scale yielded 2.83% in 10 years yesterday, five basis points lower than Wednesday, according to Municipal Market Data.
The 20-year yield was 3.68%, two basis points lower than Wednesday, while the scale yielded 3.98% in 30 years, also two basis points lower than Wednesday.
Wednesday’s triple-A muni scale in 10 years was at 86.0% of comparable Treasuries and 30-year munis were at 94.6%, according to MMD, while 30-year tax-exempt triple-A general obligation bonds were at 98.3% of the comparable London Interbank Offered Rate.
Elsewhere in the new-issue market yesterday, JPMorgan priced $357.8 million of taxable BABs for the East Baton Rouge Sewerage Commission.
The bonds mature from 2015 through 2025, with term bonds in 2030 and 2045. Yields range from 2.973% in 2015, or 1.93% after the 35% federal subsidy, to 6.087% in 2045, or 3.96% after the subsidy, all priced at par.
The bonds were priced to yield between 80 and 200 basis points over the comparable Treasury yield.
The bonds are callable at par in 2020. They are rated Aa2 by Moody’s, AA-minus by Standard & Poor’s, and AA by Fitch.
The New York Local Government Assistance Corp. competitively sold $250.1 million of subordinate-lien refunding bonds to Citi, with a true interest cost of 3.14%.
The bonds mature from 2011 through 2025, with yields ranging from 1.34% with a 5% coupon in 2014 to 3.72% with a 4% coupon in 2025. Bonds maturing from 2011 through 2013 and in 2020 were not re-offered.
The bonds, which are callable at par in 2020, are rated Aa2 by Moody’s, and AAA by Standard & Poor’s.
Bank of America Merrill Lynch priced $207.2 million of tax-exempt London Interbank Offered Rate floating-rate student loan revenue bonds for the North Texas Higher Education Authority.
The bonds mature in 2019 and 2030, and yield the three-month Libor plus 40 and 90 basis points, respectively.
The credit is rated AAA by Standard & Poor’s and Fitch.
Morgan Stanley priced $144.4 million of pollution control revenue refunding bonds for the Maricopa County, Ariz., Pollution Control Corp. in two series. The bonds mature in 2035, yielding 5% at par.
RBC Capital Markets priced $157.9 million of taxable research and development revenue bonds for the Columbus-Franklin County, Ohio, Finance Authority.
The bonds contain split maturities in 2015 and from 2017 through 2020, a single maturity in 2021, and a term bond in 2027. Yields range from 3.672% with a 3.45% coupon in 2015 to 6.843% with a 6.625% coupon in 2027.
The bonds were priced to yield between 140 and 260 basis points over the comparable Treasury yields. They contain an unspecified make-whole call, except for bonds maturing in 2027, which are callable at par in 2015.
In economic data, initial jobless claims increased to 471,000 for the week ending May 15.
Continuing claims fell to 4.625 million for the week ending May 8, the lowest level since March 27. Continuing claims for the week ending May 1 were revised higher to 4.665 million.
Economists expected 440,000 initial claims and 4.6 million continuing claims, according to the median estimate from Thomson Reuters.
The composite index of leading economic indicators declined 0.1% in April, the first drop in more than a year, following a 1.3% gain in March. Economists polled by Thomson Reuters had predicted a 0.2% gain.
Priti Patnaik contributed to this column.
