BAB spreads gain 12-14 bps on European crisis; New York Transitional offers $1.14 billion

By Sheri Kasprzak

New York, May 17 - Municipal yields were mostly unmoved on Monday as the market prepares for about $9 billion in new bonds, according to market insiders.

"It's been a quiet session," said one trader.

"Overall, we're flat, but spots are a little better. What is improved is probably only down by a basis point or so. Not much change."

Meanwhile, Europe's financial crisis may have minimally impacted AAA-rated bonds, but Build America Bonds are taking a big hit, said Guy LeBas, chief fixed income strategist at Janney Montgomery Scott LLC.

LeBas reported Monday that 30-year BABs rated from AAA to A saw spreads gain 12 to 14 bps with lower-rated BABs seeing spreads over 30 bps since May 7.

"These spreads have since tightened slightly as the higher-level credits are now only 5 or less basis points higher," LeBas added.

"The differences in movement between the tax-exempt municipal and BAB market highlight the expanded investor base participating in the BAB market. This market was spooked by volatility concerns as a result of the European sovereign debt crisis and still has yet to normalize."

On a broader level, LeBas said municipal bonds are cheap, especially on the short end.

"Since May 7, the two-year AAA municipal index remained at the same 0.68%, but the two-year M/T ratio became more attractive at 87%," LeBas said.

"The 10-year municipal yield fell 3 basis points, closing at 2.92%, an 85% M/T ratio. On the long end, the 30-year municipal closed 3 basis points higher at 4.04% yield, for a 93% M/T ratio."

Issuers plan $9 billion

In the coming week, issuers plan to bring to market more than $9 billion in new offerings, led by a few major deals. Those offerings are led by a $1.14 billion sale from the New York City Transitional Finance Authority, which is slated to price Tuesday through Bank of America Merrill Lynch.

The offering includes $342 million in series 2010G-1 BABs; $78 million in series 2010G-2 BABs; $250 million in series 2010G-3 taxable qualified school construction bonds; $70 million in series 2010G-4 taxable subordinate bonds; $35 million in series 2010H tax-exempt subordinate bonds; $20 million in series 2010I-1 taxable subordinate bonds; and $345 million in series 2010I-2 tax-exempt subordinate bonds.

The Commonwealth of Pennsylvania also intends to bring a big deal. The state is set to sell $1 billion in general obligation bonds competitively on Wednesday. That sale includes $451.1 million in series 2010A tax-exempt bonds and $548.9 million in series 2010B BABs.

East Baton Rouge to price

Also coming up, the East Baton Rouge Sewerage Commission of Louisiana is expected to sell $375.375 million in series 2010 revenue bonds on Thursday, according to a sales calendar.

The bonds (Aa2/AA-/AA) will be sold through J.P. Morgan Securities Inc. and Citigroup Global Markets Inc.

The sale includes $15.52 million in series 2010A tax-exempt bonds and $359.855 million in series 2010B BABs.

The 2010A bonds are due 2011 to 2014, and the 2010B bonds are due 2015 to 2025 with term bonds due 2030 and 2045.

Proceeds will be used to improve, expand, acquire and construct improvements to the sewerage system in East Baton Rouge, La.

P.R. power bonds ahead

Coming up on Wednesday, the Puerto Rico Electric Power Authority plans to sell its previously announced $325 million in series YY revenue BABs on Wednesday, according to a sales calendar.

The bonds (A3/BBB+/BBB+) will be sold through Santander Securities.

The bonds are due 2040.

Proceeds will be used to fund capital improvement, as well as refund existing power revenue bonds.

The authority, based in San Juan, is an electric power utility.

Columbus-Franklin plans deal

Coming up on Tuesday, the Columbus-Franklin County Finance Authority of Ohio is scheduled to bring $158.065 million in series 2010A taxable research development revenue bonds, according to a sales calendar.

The bonds (/AA-/) are due 2015 to 2021 with a term bond due 2027.

RBC Capital Markets Corp. is the senior manager.

Proceeds will be used to refinance debt.

Located in Columbus, Ohio, the authority manages the finances of the city and the county.

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