Yields close unchanged; volume holds solid despite uncertainty of Build America Bonds' future

By Sheri Kasprzak

New York, Oct. 18 - Municipal yields kicked off the week mostly unmoved, reported traders reached in the afternoon. Meanwhile, the upcoming primary calendar remains robust despite the approaching Nov. 2 election and fears over the future of Build America Bonds.

On Monday, munis held steady even as Treasuries faltered.

"We're flat," said one trader. "There's not too much going on in secondary, and nothing is really driving the market today."

Amid light to moderate trading Monday, the State of Tennessee's series 2010A general obligation bonds were moving. The 3% 2024 bonds were seen trading at 3.068%.

Elsewhere, the North Carolina Turnpike Authority's Monroe Connector series 2010A Build America Bonds were trading. The 5.418% 2041s were seen at 5.456% after pricing late last week at par.

Even though the coming week will provide plenty in the way of primary action, the market itself seems to be taking a wait-and-see approach ahead of the election, said Alan Schankel, managing director at Janney Montgomery Scott LLC.

"Presumably, with the election settled, discussion of BABs extension as well as legislation to extend Bush-era tax cuts will resume," Schankel said.

"Whether and how these issues are dealt with by a lame-duck Congress, or the new 112th Congress, with its likely new political balance, remains to be seen. We expect a strong pace of BABs supply during the remainder of 2010 as issuers lock in the 35% interest-rate subsidy, which will either be reduced or eliminated."

A combination of uncertainty over future tax rates, a heavier post-Labor Day new-issue supply and general rate shock drove muni-to-Treasury ratios to the highest levels of the year in many maturities, said Schankel.

"If 10-year maturity tax-free bonds offer a 2.63% yield while the maturity Treasuries yield 2.56%, the M/T ratio is 103%," he noted.

PANYNJ to sell bonds

Looking ahead, the Port Authority of New York and New Jersey will head up another week of healthy supply with its $850 million offering of consolidated bonds.

The offering includes $425 million in 164th series bonds and $425 million in 165th series bonds, said a preliminary official statement.

The bonds (Aa2/AA-/AA-) will be sold on a negotiated basis with Citigroup Global Markets Inc.

Proceeds will be used to support capital expenditures connected to One World Trade Center and its retail components at the World Trade Center site.

New York Health preps deal

Also coming during the week, the New York City Health and Hospitals Corp. will bring its previously announced $513.825 million in series 2010A health system revenue bonds (Aa3/A+/A+) through J.P. Morgan Securities LLC, Morgan Stanley & Co. Inc. and Citigroup Global Markets Inc.

Tom Kozlik, municipal credit analyst at Janney Montgomery Scott, said Monday that the corporation announced the offering earlier this month but decided there was not enough savings with Build America Bonds rates to warrant the risk of their usage.

"A key risk reportedly considered was the possibility of the elimination of the 35% subsidy on future BABs issues," Kozlik said.

"The issue is scheduled to take retail orders this morning, and Janney will participate in the transaction as a co-manager."

The corporation plans to use the proceeds to construct, renovate and make improvements to its facilities and refund debt.

LCRA plans sale

Coming up on Thursday, the Lower Colorado River Authority plans to bring to market $372.51 million in series 2010 refunding revenue bonds, said a preliminary official statement.

The offering includes $242.785 million in series 2010A bonds and $129.725 million in series 2010B bonds.

The 2010A bonds are due 2012 to 2030. The 2010B bonds are due 2011 to 2024.

The bonds (A1/A/A+) will be sold through senior manager Goldman, Sachs & Co. with Barclays Capital Inc., Bank of America Merrill Lynch and Morgan Stanley as the co-senior managers.

Proceeds will be used to refund the authority's existing series A commercial paper notes and parity debt as well as make a deposit to a debt service reserve fund.

The authority is based in Austin, Texas.

Great River powers deal

Out on the horizon, Great River Energy of Elk River, Minn., is expected to bring $450 million in series 2010D first mortgage bonds, said a preliminary official statement.

The joint bookrunners are JPMorgan, US Bancorp, Mitsubishi UFJ Securities Inc. and Scotia Capital Inc.

The bonds (/A-/) are being sold under Rule 144A.

Proceeds will be used to fund capital expenditures related to the development and construction of a new generation and transmission facility as well as the upgrade of existing facilities. The remainder will be used for general corporate purposes.

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