San Francisco Utility Delays Build Americas After Yields Leap: Muni Credit
San Francisco Agency Postpones Sale as Yields Soar
Brian Branch Price/Bloomberg
The future of the Build America program remains unclear after President Barack Obama and congressional Republicans left the federally subsidized bonds out of a tax deal they reached this week.
The future of the Build America program remains unclear after President Barack Obama and congressional Republicans left the federally subsidized bonds out of a tax deal they reached this week. Photographer: Brian Branch Price/Bloomberg
San Francisco’s Public Utilities Commission, which supplies water to 2.5 million people in the Bay Area, postponed $524 million in competitive offerings, including $350 million in Build America Bonds, as yields soared.
The average yield on taxable Build Americas climbed to 6.35 percent Dec. 7, the highest since Jan. 7, according to a Wells Fargo index. Signs that the global economic recovery is gathering pace also pushed up tax-exempt yields, which move inversely to prices, along with U.S. Treasuries and other fixed- income markets.
The future of the Build America program, which expires Dec. 31, remains unclear after President Barack Obama and congressional Republicans left the federally subsidized bonds out of a tax deal they reached this week.
“It’s just a lot of news and a lot of information to digest,” said Todd Rydstrom, chief financial officer of the San Francisco utility. “It’s best for our ratepayers to delay it one week.” Delaying from yesterday may result in lower borrowing costs, he said.
The premium investors demand above Treasuries to buy the debt rose to 199 basis points on Dec. 7, the highest since Aug. 31, Bloomberg data shows. A basis point is 0.01 percentage point.
Yields on top-rated tax-exempts due in 20 years jumped about 12 basis points yesterday to 4.19 percent, the highest since Aug. 28, 2009, according to a Bloomberg Valuation index. Every maturity except the shortest had a rise in rates yesterday, with 18-year debt making the biggest jump, BVAL benchmark indexes show.
Tax-Exempt Portion
The utilities commission had also planned a sale of about $174 million in tax-exempts yesterday, with the bulk coming due in November 2030, Bloomberg data show. The amount of tax-exempts and Build Americas offered may change as needed to minimize cost, Rydstrom said.
“We’ll consider the mix right up into the final hour on the BAB and tax-exempts,” he said. “It’s a plain-vanilla, essential-service revenue bond, and the market will always like that. We’re looking for a successful sale next week.”
The agency is one of four issuers postponing deals this week, along with three that rejected bids, according to data compiled by Bloomberg. States and municipalities were set to sell $13.1 billion in fixed-rate debt this week, including more than $5 billion in taxable Build Americas, both three-week highs, Bloomberg data show.
Supply Pressure
The increased supply in the market has exacerbated the selloff this week, said Matt Fabian, managing director of Municipal Market Advisors, an independent research firm based in Concord, Massachusetts.
“The fact that there are so many bonds in the market -- a strong secondary, strong primary -- those make it harder for the market to stabilize,” he said. “In general, munis might hold on a bit better except for the concern about BABs.”
Prices on Treasuries dropped, pushing yields of benchmark 10-year notes to the highest in about six months, as optimism the global economic recovery is gathering pace sapped demand for the relative safety of U.S. government debt.
The 10-year Treasury note yield advanced 15 basis points to 3.27 percent at 5:21 p.m. in New York, according to BGCantor Market Data. The yield touched 3.33 percent, the highest level since June 4.
‘Treasuries Moving’
The muni selloff is “95 percent Treasuries moving,” said Alan Schankel, managing director of Philadelphia-based Janney Montgomery Scott LLC, which oversees $12 billion in fixed-income securities. Still, “munis are holding up pretty well compared with Treasuries,” he said.
For the month, tax-exempt investors have lost 1.49 percent, compared with a decline of 1.88 percent for owners of Treasuries, according to Bank of America Merrill Lynch indexes.
The iShares S&P National AMT-Free Bond Fund, an exchange- traded fund that seeks investment results that correspond to the performance of the S&P Municipal Bond Index, lost as much as 1.4 percent today, touching $98.63, the lowest since March 18, 2009. The fund was down 0.75 percent to $99.25 at 5:21 p.m. in New York., the lowest since June 19, 2009.
Following is a description of a pending sale of U.S. municipal debt:
NEW YORK LIBERTY DEVELOPMENT CORP., a state arm created to finance loans for lower Manhattan construction, will sell about $1.3 billion in tax-exempts today to refinance existing debt from the World Trade Center project, according to Standard & Poor’s, which assigned a rating of AA-, fourth-highest. The bonds are backed by support payments from the Port Authority of New York & New Jersey, which owns the site, and rent from New York City, S&P said in a Dec. 1 report. Goldman Sachs Group Inc. will lead banks marketing the bonds. (Updated Dec. 9)
To contact the reporters on this story: Brendan A. McGrail at bmcgrail@bloomberg.net; Michael McDonald in Boston at mmcdonald10@bloomberg.net.
To contact the editor responsible for this story: Mark Tannenbaum at mtannen@bloomberg.net
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