The municipal market was again unchanged yesterday as Citi priced $908 million of taxable Build America Bonds for California.
In the new-issue market yesterday, Citi priced $908 million of BABs for the Golden State that mature in 2039, yielding 7.26%, or 4.74% after the 35% federal subsidy. The bonds were priced to yield 300 basis points over the comparable U.S. Treasury yield.
The sale was announced Monday, and was “based on an inquiry the state received,” according to an e-mail from Tom Dresslar, spokesman for Treasurer Bill Lockyer. Dresslar also wrote that “an investor who made the so-called 'reverse inquiry’ that spurred this public offering purchased $750 million. Other investors bought the balance.”
Traders said that the BAB deal was met with considerable demand.
“I think the sell-off on the Treasuries may have helped the BAB sale considerably,” said a trader in Los Angeles. “Being down a point and a quarter on the 30-year Treasury, that’s going to make it more attractive.”
The Treasury market showed some losses yesterday. The yield on the benchmark 10-year note opened at 3.41% and finished at 3.48%. The yield on the two-year note opened at 0.91% and finished at 0.93%. The yield on the 30-year bond finished at 4.34% after opening at 4.26%.
Another trader in Los Angeles, however, noted that “if munis are cheap, or attractive I should say, they are going to buy it no matter what the Treasuries are doing. That’s the way muni traders are.”
“For us it’s been the Cal ERB [economic recovery bond] deal — the $3 billion deal — we’ve been pretty concentrated on trading that,” the trader continued. “The focus out here is this deal. It’s not just center stage; it’s the only stage. You can’t buy anything cheaper.”
Tomorrow, E.J. De La Rosa & Co. will price for institutions $1.5 billion of California general obligation bonds, in what is the largest scheduled sale of the week. The deal consists of $1.3 billion of new-money bonds and $194 million of refunding debt.
Yesterday, the state offered to retail investors $100 million of bonds that mature in 2034, with a yield of 5.5%. The new-money bonds are structured to mature from 2032 to 2039 and will finance various capital improvement projects. California GOs are rated Baa1 by Moody’s Investors Service, A by Standard & Poor’s, and BBB by Fitch Ratings.
Traders expect appetite for California paper to remain robust tomorrow.
“I think its going to end up being a very good deal all the way around,” a third Los Angeles trader said. “I’d be shocked if demand wasn’t strong tomorrow.”
Traders said tax-exempt yields in the secondary market were flat.
“The secondary is fairly quiet,” a trader in New York said. “I’d say we’re just flat, not really seeing any movement in either direction.”
Elsewhere in the new-issue market yesterday, Montgomery County, Md., competitively sold $392 million of bonds in two series, including $232 million of taxable BABs. The bonds were sold to JPMorgan with a true interest cost of 4.88%. They mature from 2015 through 2029 and were not formally re-offered.
The $160 million tax-exempt refunding series was sold to Morgan Stanley with a TIC of 2.65%, and matures from 2010 through 2020. They were not formally re-offered. All the bonds are callable at par in 2019 and are rated triple-A by all three major rating agencies.
Morgan Stanley priced $372.3 million of public improvement refunding bonds for Puerto Rico. The bonds mature from 2036 through 2039. Yields range from 5.875% priced at par in 2036 to 6.00% priced at par in 2039. The bonds are callable at par in 2019, except for bonds maturing in 2036, which are callable at par in 2014. The credit is rated Baa3 by Moody’s and BBB-minus by Standard & Poor’s.
Merrill, Lynch & Co. priced $241.7 million of bonds for Honolulu in three series, including $50.4 million of taxable BABs. The bonds mature from 2014 through 2034. Full pricing information was not available by press time, but the bonds were priced to yield between 90 and 195 basis points over the comparable Treasury yield. Bonds from the $141.7 million tax-exempt Series D mature from 2014 through 2034, with yields ranging from 2.27% with a 2.25% coupon in 2014 to 4.49% with a 5.25% coupon in 2034. The bonds are callable at par in 2019.
Bonds from the $49.5 million tax-exempt series mature from 2014 through 2020 with yields ranging from 2.27% with a 5% coupon in 2014 to 2020, with yields ranging from 2.27% with a 5% coupon in 2014 to 3.58% with a 5% coupon in 2020. The bonds are also callable at par in 2020. The credit is rated Aa2 by Moody’s and AA by Standard & Poor’s and Fitch.
Yesterday’s Municipal Market Data triple-A scale yielded 3.03% in 10 years and 3.82% in 20 years, matching Monday’s levels of 3.03% and 3.82%, respectively. The scale yielded 4.23% in 30 years yesterday, matching Monday’s level of 4.23%.
As of Monday’s close, the triple-A muni scale in 10 years was at 88.9% of comparable Treasuries, according to MMD, and 30-year munis were 99.5% of comparable Treasuries. Thirty-year tax-exempt triple-A GOs were at 101.7% of the comparable London Interbank Offered Rate.
