Munis finish the day firmer but unchanged; market braces for influx of Build America Bonds

By Aaron Hochman-Zimmerman and Sheri Kasprzak

New York, Aug. 17 - Municipals ended Monday mostly unmoved, but at least one trader said he saw some firming in the market.

"It's pretty flat," said the New York-based trader.

"We're looking a little firmer out there, especially on the long end. It has been really quiet today, but that's what you'd expect. The market is still feeling really summery. Lots of people are out on vacation."

One market insider said long-end yields are at the lowest levels he's seen in a while.

"Municipal yields on the long end are the lowest they have been in a month after 30-year high-grades dropped in yield to 4.59% on Friday," said Guy LeBas, chief fixed income strategist at Janney Montgomery Scott LLC.

"The municipal market is expected to price approximately $9 billion of primary issuance this coming week, including a deal from the [Dormitory Authority of the State of New York]," which is selling state personal income tax revenue bonds starting Tuesday.

Dasny sale features BABs

The Dasny sale will include $400 million in tax-exempt bonds, $135 million in taxable bonds and $700 million in Build America Bonds.

Also coming up from the Build America Bonds bin is a $1.37 billion sale of general revenue bonds and Build America Bonds from the Regents of the University of California. The university is set to sell the bonds Wednesday after a retail order period on Tuesday.

The sale will include $1.045 billion in Build America Bonds and $325 million in tax-exempt bonds.

Primary ramps up

Equities were smashed as the week opened on Monday and Treasuries saw new buyers.

While money was pulled out of many types of risky assets, in municipal bonds they're buying, a senior trader said, although there aren't as many bonds to buy.

The coming days are full of major issues that have the potential to test the market's mettle.

Each day in primary for Tuesday, Wednesday and Thursday features a deal worth more than $1 billion.

"It really ramped up really quickly," a syndicate official said, but so many of the recent major issues have traded well after reaching the secondary.

The bonds from Charlotte-Mecklenburg Hospital Authority in North Carolina priced on behalf of Carolinas Health Care System on Aug. 12 performed well, the syndicate official said.

The bonds due 2028 were seen trading at 5.092%.

Billions in sales ahead

Elsewhere, more than a billion in bonds is expected from the Texas Transportation Commission. The $1.112 billion sale includes mobility fund bonds and Build America Bonds and will be sold through Merrill Lynch & Co. Inc.

The bonds will be priced Wednesday.

Proceeds will be used to construct, acquire, improve and expand state highways.

In other pricing news for the week, the City of Houston is set to sell $490.81 million in series 2009 public improvement refunding bonds Tuesday.

The bonds (Aa3/AA/) will be sold through lead manager Loop Capital Markets LLC.

Proceeds will refund the commission's commercial paper notes and existing public improvement bonds.

Keystone notes to price

Also coming up, the Commonwealth of Pennsylvania will offer $689.625 million of its second refunding series 2009 general obligation bonds on Aug. 25, according to a preliminary offering statement.

The competitive bonds will carry serial maturities from 2010 to 2021.

Proceeds from the sale will be used to refund bonds that mature from 2000 to 2021.

Minnesota sells bonds

Moving to recent offerings, the State of Minnesota priced $598.4 million in series 2009D-F G.O. bonds (Aa1/AAA/) Tuesday, according to Kathy Kardell, Minnesota management and budget assistant commissioner.

Public Resources Advisory Group acted as financial adviser for the competitive deal.

Barclays Capital Inc. bought $192.275 million of the series 2009D G.O. state various purpose bonds at a true interest cost of 3.401%. These bonds carry serial maturities from 2010 to 2029.

Merrill Lynch & Co. bought $80 million of the series 2009E G.O. state trunk highway bonds and $297.75 million of the series 2009F G.O. state various purpose refunding bonds. The 2009E bonds, which are due 2010 to 2029, have a 3.413% TIC. The 2009F bonds are due 2010 to 2021 and priced at a TIC of 2.527%.

Piper Jaffray & Co. bought $28.36 million of the series 2009G G.O. state trunk highway refunding bonds at a TIC of 2.522%. These bonds carry serial maturities from 2011 to 2021.

Proceeds from the sale will be used to fund various capital projects as well as refund outstanding debt.

The state decided to use the competitive format to take advantage of the current rates, "while the market was good," Kardell said.

The deal is larger than many competitive offers, but Kardell noted that the amount was smaller than the $765.115 million priced by the State of Washington on July 14.

J.P. Morgan Securities Inc. bought all three tranches of the Washington G.O. bonds at TICs of 4.43%, 4.275% and 3.003%.

The Minnesota bonds priced "right where we expected," Kardell said.

Still, "the state expects to sell approximately $460 million of general obligation various purpose bonds in October to finance additional capital projects," according to a statement from the Minnesota budget office.

Secondary firms

Looking to the secondary market, traders said the market felt firmer but was mostly unmoved. The long end of the curve looked a little better, a trader noted.

Among the light trading action to kick off the week, the Indiana Finance Authority's recently priced series 2009A revenue bonds for Parkview Health System were seen moving. The 5.875% 2029 bonds were seen at 5.856% Monday.

The Special Care Facilities Financing Authority of Birmingham's bonds sold for Birmingham Children's Hospital were also moving. The 5% 2021s were seen at 4.76%.

© 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.