| Bonds Online |
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| 5/10/2013Market Performance |
| Municipal Bonds |
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S&P National Bond Index
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3.00% |
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S&P California Bond Index
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2.96% |
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S&P New York Bond Index
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3.13% |
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S&P National 0-5 Year Municipal Bond Index
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0.70% |
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| S&P/BGCantor US Treasury Bond |
400.09 |
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| Income Equities: |
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| Preferred Stocks |
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S&P U.S. Preferred Stock Index
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848.03 |
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S&P U.S. Preferred Stock Index (CAD)
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636.26 |
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S&P U.S. Preferred Stock Index (TR)
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1,701.05 |
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S&P U.S. Preferred Stock Index (TR) (CAD)
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1,276.26 |
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| REITs |
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S&P REIT Index
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174.07 |
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S&P REIT Index (TR)
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425.30 |
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| MLPs |
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S&P MLP Index
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2,469.58 |
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S&P MLP Index (TR)
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5,428.50 |
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See Data
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Build America Bond Sales May Rise 40% Next Year, JPMorgan Says |
By Jeremy R. Cooke
Dec. 1 (Bloomberg) -- New issues of Build America Bonds, the type of subsidized taxable debt Massachusetts sold today, may rise 40 percent from this year’s monthly average to total $110 billion in 2010, JPMorgan Chase & Co. said.
Build America sales, which have exceeded $56 billion since they began in April, are poised to finish the year at about $59 billion for a $6.56 billion monthly average, according to a Nov. 27 report from the New York-based bank. Massachusetts, the U.S. state with the second highest tax-supported debt per capita, boosted its offering of Build America Bonds to fund public works by 91 percent to $965.5 million.
The stimulus initiative, under which the U.S. Treasury pays 35 percent of the interest for states and municipalities, may produce $9.17 billion a month in deals next year, JPMorgan estimates, as more issuers seek lower net borrowing costs than on traditional tax-exempt financing. The increase would help to buoy the value of bonds in the broader municipal market.
“The motivation to issue BABs instead of tax-exempt debt is clear and simple: to save money,” Chris Holmes and Alex Roever, JPMorgan fixed-income strategists, said in the report.
James Esposito, head of investment grade banking at Goldman Sachs Group Inc., estimated about $90 billion in Build America Bonds may be sold next year, speaking at a conference today for U.S. state treasurers in New York.
Investment banks led by Goldman Sachs and Barclays Plc handled the Massachusetts offering, the third group of Build America Bonds to be sold by the state after public-university and mass-transit deals in October.
State Ratings
Massachusetts’s general obligation pledge is rated AA by Standard & Poor’s and Fitch Ratings and an equivalent Aa2 by Moody’s Investors Service.
The state sold $756.5 million of bonds due in December 2039 at 5.456 percent, 120 basis points more than comparable-maturity Treasuries, and $200 million of bonds set to mature in January 2030 at 5.306 percent, 105 basis points more than benchmarks, according to data compiled by Bloomberg. A basis point is 0.01 percentage point.
The BofA Merrill Lynch Build America Bond Index has returned 6.3 percent since its April 30 inception. The firm’s Municipal Master Index, which accounts for price swings and interest income, rose 13.8 percent this year through yesterday, its best performance for that period since 1995. During the same time, the Treasury Master Index fell 1.1 percent.
Municipal Market Advisors’ daily survey of yields on benchmark 10-year general obligation bonds fell two basis points to an eight-week low of 3.02 percent today. The index, compiled by the Concord, Massachusetts-based independent research firm, began the year at 3.91 percent.
Yields May Rise
Yields on lower-rated Build America Bonds may rise as much as 30 basis points relative to comparably rated corporate debt if governments recover more slowly from the recession than companies do and corporate debt issuance falls in 2010, according to the JPMorgan report.
Build America issues with BBB ratings were yielding on average at least 100 basis points more than similar company bonds as of Nov. 20, while the spread, or yield difference, was less than 20 basis points for AAA securities, JPMorgan said. Taxable municipal bonds with AA grades had yields similar to corporates in that category, the latest average shows.
Tennessee Sale
The authorization to sell Build America Bonds, included in February’s American Recovery and Reinvestment Act, currently expires at the end of 2010, which may prompt a flurry of last- minute issuance next fourth quarter. Investors are speculating Congress may extend the program and reduce the level of subsidy on new issues from 35 percent, JPMorgan said.
Among other municipal sales today, Tennessee sold $235.8 million of tax-exempt bonds and $54.2 million of non-subsidized taxable securities through underwriters led by Barclays, according to Bloomberg data.
Tax-exempt yields ranged from 0.62 percent on debt due in May 2011 to 3.91 percent on bonds set to mature in May 2030. The 10-year maturity had a 2.87 percent yield.
Twenty-year taxable debt was priced to yield 132 basis points more than similar maturity Treasuries.
To contact the reporter on this story: Jeremy R. Cooke in New York at jcooke8@bloomberg.net.
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Income Security Recommendation January 2013 Issue.
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