Muni bonds drop; BAB uncertainty drives market; Pennsylvania to price $650 million of bonds

By Cristal Cody

Tupelo, Miss., Dec. 13 - Municipal bonds performed worse on Monday, a trader said.

"Rates went higher, muni value went down," the trader said. "People are closing their books, and there's an uncertainty on whether BABs are going to get extended. It's pretty much just a mess."

The Build America Bond program is expected to expire on Dec. 31, and issuers are rushing to get deals done.

Another new sale of Build America Bonds was announced by the Commonwealth of Pennsylvania, while New York City plans to sell $745 million of Build America Bonds as part of a $1.175 billion offering. Both deals are expected to price on Wednesday.

"We sawed off 5 to 8 basis points just on that reason [Build America Bonds]," the trader said. "The outflow of BAB funds and bids are cheaper and everyone's trying to get paper moved before the end of the year."

The momentum is offering "an extremely good opportunity to buy - we're seeing some yields now we haven't seen in a while," the trader said. "Things are out there trading easy 106% of Treasuries."

Pennsylvania's $650 million

Pennsylvania intends to sell $650 million in three tranches of general obligation bonds (Aa1//AA+), including $466.605 million of third series 2010B Build America Bonds, according to a preliminary official statement.

The sale also includes $171.895 million of third series 2010A bonds and $11.5 million of third series 2010C bonds.

The bonds will price through a competitive sale on Wednesday, according to the statement.

Public Financial Management Inc. is the financial adviser.

The series 2010A bonds have serial maturities from 2012 through 2018. The series 2010B bonds have serial maturities from 2019 through 2030, and the series 2010C bonds have serial maturities from 2012 through 2030.

Proceeds will be used for capital projects, to provide grants and loans for water supply and sewage treatment improvements and for environmental initiatives.

Nebraska Investment to price

In other new offerings, the Nebraska Investment Finance Authority expects to sell $675 million in three tranches of single-family housing revenue bonds, according to a preliminary official statement.

The first tranche of $196.425 million of 2010A fixed-rate bonds has biannual maturities from 2011 through 2022 and term bonds due 2026, 2031, 2036, 2041 and 2045.

The second tranche of $347.855 million of series 2010B variable-rate bonds has a term maturity due 2038.

The third tranche of $130.72 million of series 2010C variable-rate bonds has a term maturity due 2032.

J.P. Morgan Securities LLC is the senior manager of the negotiated sale.

Proceeds will be used to acquire securities and to refund outstanding bonds.

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