Long bonds weaken by up to 10 bps on BABs extension uncertainty; Texas Public Finance prices

By Sheri Kasprzak

New York, Dec. 7 - Municipal yields were higher on Tuesday following word that Build America Bonds might not be extended after all.

Some market insiders were confident that Build America Bonds will be extended into 2011 with a lower subsidy, but uncertainty crept in to the market Tuesday after Build America Bonds were left out of a proposed tax package. Yields on long bonds were up as much as 10 basis points, one trader reported in the afternoon.

"It really is a bit of a shock to the system," the trader said.

"I think a lot of folks were expecting some sort of extension, and now no one's sure about what's happening. It's sending things into a tailspin. Past 30 years, yields are up about 8 to 10 basis points. Shorter bonds don't seem to be getting hit that hard, but yields are up everywhere, maybe 3 to 5 basis points."

The proposal sent gums flapping in the market, and many sellsiders and analysts were abuzz about the news.

"Today, a proposed federal tax package, the framework of which was agreed to by President Obama and Congressional leaders, still faces hurdles, and we could certainly see some modifications before the sausage emerges from the grinder," said Alan Schankel, managing director at Janney Montgomery Scott LLC.

"Reports indicate that [an] extension of [the] Build America Bond program is not included, but the proposal retains a 35% top bracket tax rate and a 15% capital gains rate through 2012."

One sellsider noted that caution should be taken before jumping to conclusions.

"It's a proposal, but any time you get news like this, people get scared," he said.

"There's time for changes and corrections. I suspect that things will settle down, even if there is no extension."

Texas Public bonds price

Heading up an active day for the primary market, the Texas Public Finance Authority sold $854.735 million of series 2010 unemployment compensation obligation assessment revenue bonds (Aa1/AAA/AA+) through Citigroup Global Markets Inc. and Bank of America Merrill Lynch, said a term sheet.

The deal included $554.735 million of series 2010B bonds and $300 million of series 2010C bonds.

The 2010B bonds are due 2018 to 2020 and have 5% coupons across the board. The 2010C bonds are due 2020 and have a 2.6% coupon priced at par.

Proceeds will be used to repay advances made from the federal unemployment trust fund and pay for current unemployment benefits.

Wayne County flies deal

Also during the session, the Wayne County Airport Authority of Michigan sold $657.765 million of series 2010 airport revenue refunding bonds, said a partial pricing sheet.

The deal included $297.8 million of series 2010A AMT bonds, $9.38 million of series 2010B non-AMT bonds, $322.3 million of series 2010C non-AMT bonds and $28.285 million of series 2010D non-AMT bonds.

The 2010A and 2010B bonds (A2/A/A-) were sold through Siebert Brandford Shank & Co. LLC and Citigroup. The 2010C and 2010D bonds were sold through J.P. Morgan Securities LLC and Citigroup.

The 2010A bonds are due 2011 to 2018 with 2% to 5% coupons. The 2010B bonds are due 2011 and 2013 with 4% to 5% coupons. The 2010C bonds are due 2011 to 2022 with 1.5% to 5.5% coupons, and the 2010D bonds are due 2011 to 2021 with 1.5% to 5.5% coupons.

The Detroit-based authority plans to use the proceeds to refund debt.

Colorado brings TRANs

Elsewhere, the State of Colorado priced $325 million of series 2010B education loan program tax and revenue anticipation notes, said a pricing sheet.

The bonds (MIG 1/SP-1+/) were sold competitively. Goldman, Sachs & Co. took the largest portion - a $280 million piece - with a 2% coupon to yield 0.33%. Piper Jaffray & Co. won $25 million of the notes, also with a 2% coupon to yield 0.33%. Barclays Capital Inc. took $20 million of 2% notes to yield 0.33%.

The notes are due June 30, 2011, and proceeds will be used to provide funding to local school districts ahead of the collection of property taxes.

Alaska prices $182.16 million

In other news, the State of Alaska brought $182.155 million of series 2010 general obligation bonds on Tuesday, downsized from $200 million, said a pricing sheet.

The bonds (Aaa/AA+/AA+) were sold through Citigroup and RBC Capital Markets Corp.

The offering included $119.57 million of series 2010A Build America Bonds, $45 million of series 2010B qualified school construction bonds and $17.585 million of series 2010C tax-exempt bonds.

The 2010A bonds are due 2026 to 2030 with a term bond due 2033. The serial coupons range from 5.242% to 5.642%, all priced at par. The 2033 bonds have a 5.742% coupon priced at par.

The 2010B bonds are due 2026 to 2028 with 5.242% to 5.442% coupons, all priced at par.

The 2010C bonds are due 2011 to 2012 with 5% coupons. The bonds were not reoffered.

Proceeds will be used to design and construct library, educational and educational research facilities throughout the state.

Massachusetts plans sale

Out on the horizon, the Commonwealth of Massachusetts is set to sell $576.27 million of series 2010A commonwealth transportation revenue recovery zone economic development bonds, said a preliminary official statement.

The bonds (Aaa/AAA/) will be sold on a negotiated basis with JPMorgan as the senior manager.

The bonds are due 2024 to 2025 with term bonds due 2030 and 2040.

Proceeds will be used to finance bridge improvements throughout the commonwealth.

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