Yields drop more as heavy calendar feeds investor demand; New York City authority sells bonds

By Sheri Kasprzak

New York, Dec. 7 - Municipals rallied on Wednesday as continued heavy supply fed investors' appetites for high-quality bonds, said market insiders.

Twenty-year yields were down more than 11 basis points and 15-year yields were down nearly 10 bps. Seven-year yields were seen down by about 8 bps, said a trader reached late in the session.

"Secondary is really seeing a lot of action," said the trader.

"The past few weeks have been incredibly active [for primary] and that's really fueling secondary."

Asked about the quality of the bonds trading, he noted that, for the most part, the higher-quality debt is getting the attention.

Among some of those recently priced offerings seen traded in the secondary, the California Department of Veterans Affairs's series 2011A bonds were moving. The 4.25% bonds due 2025 were seen trading Wednesday at 4.201%. The bonds priced Dec. 1 at 99.

New York State's bonds, which priced Tuesday, were also seen moving in the secondary on Wednesday. The 4% bonds due 2037 were seen trading at par late Wednesday after pricing at 97.627.

New York Transitional prices

Leading the heavy primary activity, the New York City Transitional Finance Authority offered up $650 million of series 2012 building aid revenue bonds (Aa3/AA-/AA-) following healthy interest from retail investors, according to Raymond Orlando, spokesman for the New York City Mayor's Office of Management and Budget.

Orlando said Wednesday that the authority received $266 million of retail orders for the bonds in a two-day retail order period that began on Monday.

"At final pricing, yields on nine of the longer maturities were reduced by 2 bps," Orlando said.

Final yields on the tax-exempt portion of the deal range from 0.38% in 2013 to 4.5% in 2041, said Orlando.

The deal included $550 million of series 2012S-1A tax-exempt bonds and $100 million of series 2012S-1B taxable qualified school construction bonds.

The 2012S-1A bonds were sold on a negotiated basis with Morgan Stanley & Co. LLC as the senior manager. Morgan Stanley also won the competitive bid for the 2012S-1B taxable bonds with a 4.799% true interest cost.

The 2012S-1A bonds are due 2013 to 2027 with term bonds due in 2031, 2032, 2033, 2037 and 2041. The serial coupons range from 2% to 5%. The 2031 bonds have split maturity with a 4.125% coupon priced at 99.93 and a 5% coupon priced at 106.824. The 2032 bonds have a 5% coupon priced at 106.092. The 2033 bonds have a 5% coupon priced at 105.527. The 2037 bonds have a 5.25% coupon priced at 106.988. The 2041 bonds have a 4.5% coupon priced at par.

The 2012S-1B bonds are due July 15, 2030, and have a 5% coupon priced at 103.059.

Proceeds will be used to construct qualified schools within the city, as well as complete other capital projects.

Some positive news seen for insurers

Although massive downgrades and tough economic times have forced some bond insurers out of business, there have been some positive actions in the industry recently, said Jay Abrams, chief municipal credit analyst with FMS Bonds Inc.

Assured Guaranty and Assured Guaranty Municipal, companies owned by Assured Guaranty Ltd., saw their financial strength ratings dropped to AA- from AA+ as a result of changes to Standard & Poor's rating criteria, said Abrams.

"Significantly, however, both AG and AGM's outlooks were raised from negative to stable," Abrams noted in a report released Wednesday.

According to S&P, strong business and capital positions were key factors in supporting the new ratings and outlook for the insurers.

Additionally, S&P reaffirmed National Public Finance Guaranty Corp.'s BBB rating with a developing outlook. The corporation was split off from MBIA Insurance Corp. Abrams wrote Wednesday that S&P indicated that if current litigation challenging the municipal portfolio split off fails, NPFG would likely see its rating raised to the A category and NPFG would probably re-enter the municipal bond insurance underwriting business.

"Once stalwarts, muni bond insurers were hit hard after straying from their core mission and venturing into the ill-fated subprime mortgage market," wrote Abrams.

"The bottom line in these recent rating actions is that the Assured companies remain strong and stable bond insurers in S&P eyes, and NPFG is well-capitalized with a low-risk book of business, perhaps a harbinger of an overall strengthening of the industry."

© 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.