Traders Focus on New Deals as Utah BABs Sell

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The Utah Transit Authority came to market yesterday with $261.5 million of taxable Build America Bond, and the Phoenix Civic Improvement Corp. priced $540.3 million of tax-exempt debt, as market participants focused on new issuance and yields in the secondary market declined slightly.

Morgan Stanley priced the BABs, which mature in 2039, yielding 5.94%, priced at par, or approximately 3.86% including the federal subsidy. These bonds were priced at 185 basis points over the comparable Treasury yield, and feature a make-whole call at the Treasury rate plus 30 basis points. The bonds are rated Aa3 by Moody's Investors Service, AAA by Standard & Poor's, and AA by Fitch Ratings.

Goldman, Sachs & Co. priced $540.3 million of tax-exempt revenue bonds for the Phoenix Civic Improvement Corp., the largest scheduled deal on the new-issue calendar this week. The bonds were priced in two series. Bonds from the $450 million Series A mature from 2014 through 2032, with term bonds in 2034 and 2039. Yields range from 2.21% with a 5% coupon in 2014 to 4.82% with a 5% coupon in 2039. The bonds are callable at par in 2019.

Bonds from the $90.3 million refunding Series B mature from 2010 through 2019, with yields ranging from 0.75% with a 4% coupon in 2010 to 3.30% with a 5% coupon in 2019. The bonds are not callable. The credit is rated Aa3 by Moody's and AAA by Standard & Poor's.

Traders said tax-exempt yields in the secondary market were lower by about two or three basis points.

"There's still not a ton going on out there, but we're a bit better," a trader in New York said. "I'd say we're up a couple basis points, maybe two or three, probably closer to three on the long end. But it's fairly quiet."

"People were kind of focused on the new issues today, but bonds are a bit more expensive," a trader in Los Angeles said. "I don't think we saw gains of more than two basis points or so, but definitely firmer. Not a slew of activity in the secondary, though."

The Treasury market showed gains yesterday. The yield on the benchmark 10-year note, which opened at 3.17%, was quoted near the end of the session at 3.11%. The yield on the two-year note was quoted near the end of the session at 0.88% after opening at 0.89%. The yield on the 30-year bond, which opened at 4.16%, was quoted near the end of the session at 4.09%.

As of Tuesday's close, the triple-A muni scale in 10 years was at 91.2% of comparable Treasuries, according to Municipal Market Data. Additionally, 30-year munis were 107.2% of comparable Treasuries. Also, as of the close Tuesday, 30-year tax-exempt triple-A rated general obligation bonds were at 120.2% of the comparable London Interbank Offered Rate.

In other new-issue market activity, Santa Clara County, Calif., competitively sold $350 million of GOs to Merrill Lynch & Co., with a true interest cost of 4.70%. The bonds mature from 2010 through 2031, with term bonds in 2034 and 2039. Yields range from 1.45% with a 3% coupon in 2012 to 3.14% with a 5% coupon in 2019. Bonds maturing in 2010, 2011, and from 2020 through 2039 were not formally re-offered.

Minneapolis competitively sold $85.4 million of GO various-purpose bonds to Merrill Lynch with a TIC of 2.99%. The bonds mature from 2009 through 2023, with a term bond in 2025. Yields range from 1.95% with a 4% coupon in 2014 to 2.60% with a 4% coupon in 2017. Bonds maturing from 2009 through 2012, and from 2018 through 2025 were not formally re-offered. The bonds, which are callable at par in 2016, are rated Aa1 by Moody's and AAA by Standard & Poor's and Fitch.

Morgan Stanley priced $84 million of unlimited-tax school building bonds for Texas' Northside Independent School District. The bonds mature in 2039, yielding 2.10% priced at par. The bonds, which are not callable, are rated Aa2 by Moody's and AA by Standard & Poor's and Fitch.

Suffolk County, N.Y., competitively sold $78.3 million of public improvement serial bonds to Merrill Lynch with a NIC of 3.77%. The bonds mature from 2010 through 2027, with yields ranging from 2.79% with a 3% coupon in 2016 to 4.12% with a 4% coupon in 2024. Bonds maturing from 2010 through 2015, in 2019, and from 2025 through 2027 were not formally re-offered. The bonds, which are callable at par in 2019, are rated Aa3 by Moody's, AA by Standard & Poor's, and AA-minus by Fitch.

Barclays Capital priced $70 million of revenue bonds for the Massachusetts Health and Educational Facilities Authority. The bonds mature in 2037, yielding 4.10% priced at par. The bonds, which are not callable, are rated A2 by Moody's.

In economic data released yesterday, retail sales dropped 0.4% in April after a revised 1.3% decline in March. Economists polled by Thomson Reuters had predicted a 0.2% rise.

Excluding autos, retail sales fell 0.5% in April after a revised 1.2% drop the prior month. Economists polled by Thomson had predicted a 0.4% jump.

Import prices rose 1.6% in April, after a revised 0.2% uptick. Economists polled by Thomson had predicted a 0.7% increase.

Also, business inventories dropped 1.0% in March after a revised 1.4% decrease. Economists polled by Thomson had predicted a 1.3% decline.

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