Issuance Plunges 91% From Year Ago as Build America Bonds End: Muni Credit
Bond Sales Fall 91% as Build America Program Ends
Brian Branch Price/Bloomberg
The Build America program, for which the federal government pays 35 percent of interest costs, wasn’t extended by Congress.
The Build America program, for which the federal government pays 35 percent of interest costs, wasn’t extended by Congress. Photographer: Brian Branch Price/Bloomberg
Dec. 29 (Bloomberg) -- Matt Fabian, managing director of Municipal Market Advisors, talks about the outlook for the U.S. municipal bond market in 2011. Tax-exempt muni bonds are heading for their worst quarterly performance in more than 16 years as yields soared amid a U.S. Treasury selloff and the looming expiration of Build America Bonds. Fabian speaks with Julie Hyman on Bloomberg Television's "Bottom Line." (Source: Bloomberg)
Municipal-debt issuance plunged 91 percent this week from a year earlier after federal initiatives such as the Build America Bonds program ended Dec. 31.
States and local governments are poised to borrow about $628 million through Jan. 7, compared with $7.36 billion in debt sold in the first week of trading last year, according to data compiled by Bloomberg. Since 2004, the first five days of each year’s trading has averaged about $2.84 billion in sales.
Many issuers probably brought forward potential first- quarter 2011 sales to the last three months of 2010 to take advantage of the programs, said Alan Schankel, director of fixed-income research for Janney Montgomery Scott LLC, a Philadelphia-based money-management firm.
“There’s a lot due to the federally supported programs, a lot sold in December,” he said. “Those issuers don’t have as much need to borrow now.”
The Build America program, for which the federal government pays 35 percent of interest costs, wasn’t extended by Congress. Issuers across the U.S. moved up planned sales to December to beat the deadline, making the last three months of 2010 the biggest quarter for Build Americas since their April 2009 inception, Bloomberg data show.
The subsidy was created under President Barack Obama’s economic-stimulus legislation as a means of driving down borrowing costs for localities and funneling money to job- creating construction projects. More than $187 billion of the bonds have been sold.
Economic Stimulus
The stimulus package also helped airports borrow more cheaply by allowing them to sell bonds whose interest is fully tax-exempt, rather than subject to the alternative-minimum tax. The tax was suspended last year. For those who have to pay AMT, interest on municipal securities issued on behalf of corporations including airports may be taxed.
About 3.9 million taxpayers filed alternative-minimum tax forms in 2008. At least 6.3 million reported receiving tax-free income, according to Internal Revenue Service data.
Coupled with limited issuance, activity in the secondary market was slow, said Mark Steffen, who oversees $450 million in munis as chief operating officer at Belle Haven Investments Inc. in White Plains, New York.
“We were poking around,” he said. “Didn’t seem that there was much for sale.”
Yields Rise
Yields on top-rated tax-exempts due in 10 years rose 4 basis points to 3.2 percent, according to data from Municipal Market Advisors, an independent research firm based in Concord, Massachusetts. Rates on debt due in 20 to 30 years were unchanged. A basis point is 0.01 percentage point.
U.S. 10-year Treasury yields increased 4 basis points to 3.33 percent, according to Bloomberg data. Earlier they rose 12 basis points to almost 3.42 percent.
Conversely, Treasury prices, which move inversely to yields, fell after a report showed manufacturing grew in December at the fastest pace in seven months and construction spending increased in November.
“Overall we’ll probably track Treasuries for the next several weeks,” Schankel said.
Following are descriptions of pending sales of U.S. municipal debt:
PARTNERS HEALTHCARE SYSTEM, which includes Brigham and Women’s and Massachusetts General hospitals, plans to sell $271 million in tax-exempts through the Massachusetts Development Finance Agency this week to fund construction and renovation projects. The debt, backed by system revenue, is rated Aa2 by Moody’s Investors Service, and AA by Standard & Poor’s and Fitch Ratings, all third-highest. JPMorgan Chase & Co. will market the securities. (Added Jan. 4)
MAINE MUNICIPAL BOND BANK, which was created by the state Legislature in 1972 to help facilitate access to low-cost capital funding, plans to sell about $77 million in tax-exempt debt today to finance loans to the state’s schools district, counties and cities. The securities are top-rated by Moody’s and Fitch. Underwriters led by Wells Fargo & Co. will market the debt to investors. (Added Jan. 4)
To contact the reporter on this story: Brendan A. McGrail in New York at bmcgrail@bloomberg.net
To contact the editor responsible for this story: Mark Tannenbaum at mtannen@bloomberg.net
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