Munis weaken on continued Treasury weakness; Wake County, N.C., brings $168.97 million bonds

By Aaron Hochman-Zimmerman and Sheri Kasprzak

New York, May 27 - The municipals market continued to show weakness Wednesday along with weaker Treasuries, even as municipals maintain low yields against Treasuries, according to one sellside source.

"Municipal yields now rank at the lowest level in more than 11 months in relation to Treasuries," said Guy LeBas, chief fixed-income strategist with Janney Montgomery Scott LLC.

"The ratio of 30-year AAA G.O.s to the 30-year Treasury measured around 101% Tuesday, which is down from a high of 228% in December and 121% just four weeks ago. A number of factors are to thank for this improvement, ranging from easing investor risk aversion - evident in 21 consecutive weeks of inflows to muni funds - to a recent run-up in Treasury yields."

Appetite for new risk may be shrinking, but there are still ways to find soft spots in the market, a financial adviser said.

"The higher the credit rating, the better," he said and then corrected himself. "The higher the underlying credit rating, the better."

Muni enthusiasm wanes

Treasury yields were on the march again on Wednesday.

"[That] certainly takes the enthusiasm out of the muni market," a trader said.

"I don't think anyone is making any money. The 10-year range is an absolute nightmare; it's an accident waiting to happen. I have a few 10-years I'm looking to get rid of."

Still, stretches of the curve around the 10-year range are still relatively healthy.

"The long-range is OK [and] maybe the real short-end [but the] 10s could run out another 50 [basis points]" or at least 30 bps, he said.

Plenty of accounts are there waiting for the right issue.

"There's some money to spend," he said, and at some point "Treasuries are going to have to turn around."

"If you hedged to Treasuries, you made a lot of money, [but] for the idiots who don't do that, it was a slow bleed. Some guys are playing on the long side, as the long end is going to Build America [Bonds], which they're turning into Treasury bonds."

Meanwhile, the calendar for the coming days is dominated by short bonds, he said.

Build America Bonds ahead

Next week will mean the introduction of new Build America Bonds to the market, which could mean a renewed interest in municipals.

The offerings are led by the City of San Antonio's $351.18 million sale of series 2009 electric and gas system revenue bonds and Build America Bonds for CPS Energy. The sale is expected to occur the week of June 1, according to a preliminary official statement.

The sale includes series 2009B revenue bonds and series 2009C taxable Build America Bonds.

Goldman, Sachs & Co. is the senior manager for the negotiated deal.

The bonds (Aa1/AA/AA+) are due 2026 to 2039.

Proceeds will be used to fund capital improvements to the electric and gas system as well as refund CPS Energy's series 1998A bonds.

Next week, the State of Wisconsin may also bring $102 million in series 2009 general obligation bonds, including a portion of the bonds being sold as Build America Bonds. The offering could price on Tuesday.

The offering will be sold on a competitive basis.

The deal is expected to include $31.9 million in series 2009 tax-exempt bonds and $70.1 million in series 2009 taxable Build America Bonds. The tax-exempt bonds are due 2012 to 2019, and the Build America Bonds are due 2020 to 2030.

Proceeds will be used to fund capital improvements.

Wake County's $168.97 million

Wake County, N.C., priced $168.97 million in refunding bonds at a true interest cost of 2.296756% (Aaa/AAA/AAA), according to Cheryl Spivey, county debt manager.

"This is what we were hoping for," Spivey said about the TIC.

"We were looking for a 4% net present value, and we got slightly more," she said.

"We're happy with sale," she added.

Barclays Capital Inc. won the auction for bonds due 2012 to 2018 over six other bidders. Waters & Co. LLC acted as financial adviser.

Proceeds from the sale will be used to refund the series 2001A, 2001B and 2002 bonds.

The county seat is Raleigh.

In other pricing news, the New Jersey Transportation Trust Fund had been slated to price $474 million in series 2009 transportation system bonds on Wednesday, including $270 million in Build America Bonds, but the terms were not immediately available, an issuer source said in the late afternoon.

The bonds (//A+) were to be sold through Merrill Lynch & Co. Inc., and proceeds will fund improvements to the state's transportation system.

New Jersey G.O. sale

In other New Jersey news, the State of New Jersey is scheduled to price $238.02 million in series O G.O. refunding bonds on June 4, said a preliminary official statement.

The bonds will be sold on a competitive basis with Public Financial Management Inc. as the financial adviser.

The bonds are due 2012 to 2022.

Proceeds will be used to refund existing auction-rate bonds.

N.Y. Transitional to price

One of the larger upcoming sales comes from the New York Transitional Finance Authority. The authority plans to price $600 million in series 2009S-5 building aid revenue bonds, said a preliminary official statement.

The bonds will be sold on a negotiated basis with Citigroup Global Markets Inc. and Goldman Sachs as the lead managers.

The bonds are due 2011 to 2029 with term bonds due 2034 and 2039.

Proceeds will be used to pay a portion of costs related to the authority's five-year building plan.

L.A. MTA to sell

Coming up, the Los Angeles County Metropolitan Transportation Authority is expected to price $251.46 million in series 2009 proposition C sales tax revenue refunding bonds, said a preliminary official statement.

The sale is expected to take place in June.

The bonds (A1/AA+/) will be sold on a negotiated basis with Goldman Sachs as the senior manager.

The bonds are due 2010 to 2020.

Proceeds will be used to retire commercial paper and refund the authority's series 1993-A bonds as well as terminate the authority's series 1993-A bonds swap agreement.

Indiana Finance to sell

In other June offerings, the Indiana Finance Authority plans to price $131.85 million in series 2009 environmental facilities refunding revenue bonds for the Indianapolis Power & Light Co., said a preliminary official statement. The bonds are set to price in June.

The sale includes $41.85 million in series 2009A bonds, $30 million in series 2009B bonds and $60 million in series 2009C bonds.

The bonds (Baa1/BBB/BBB+) will be sold on a negotiated basis with J.P. Morgan Securities Inc. and Goldman Sachs as the lead managers.

The bonds are due Jan. 1, 2016.

Proceeds will be used to refund the company's series 2005A, 2005B and 2006A bonds.

Secondary weakens

Looking to the secondary market, traders said municipal yields were up in line with Treasuries. Volume looked light as well, as investors continue to recover from the Memorial Day holiday.

In specific trades, Van Buren Public Schools of Michigan saw its series 2009 school building and site bonds moving. The 5.58% 2021 bonds were seen at 5.57%, and the 5.88% 2023 bonds were seen at 5.96%. The 5.93% 2024s were seen at 6.009%.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.