Florida Beats Texas as Homes Slim Penalty: Muni Credit
The fourth-most populous state, one of only nine with a top general-obligation grade from Standard & Poor’s, has seen the extra yield on its bonds shrink by about 25 percent this year over the average AAA security, Bloomberg Fair Value data show. Peter DeGroot at JPMorgan Chase & Co. says the yield spread has “further room to tighten” amid declining unemployment and climbing home sales.
“The market is realizing that the worst is over and that they should be trading more like the credit rating that they have,” Justin Land, who helps manage $3 billion of munis at Naples, Florida-based Wasmer Schroeder & Co., said in an interview. About 10 percent of their munis are from Florida.
Florida’s 29 electoral votes make it the biggest prize among states both presidential campaigns view as competitive in the November election. It has a AAA rank from S&P and Moody’s Investors Service’s second-highest grade of Aa1. Republican Governor Rick Scott, 59, has said protecting the bond rating is a reason for lawmakers to cut spending.
The Sunshine State’s jobless rate declined to 8.7 percent in April from an 11.4 percent peak in January 2010. The drop ties it with Illinois, Tennessee and Indiana for the fifth- biggest improvement, data compiled by Bloomberg show. Florida’s rate remains above the 8.2 percent national average.
After losses in 2008 and 2009 amid the worst recession since the 1930s, Florida’s economy grew in 2011 for the second straight year, according to the U.S. Bureau of Economic Analysis. The 0.5 percent increase last year still ranked it 37th among states.
At the same time, the average sales price on a single- family home in Florida this year is about $213,000 as of May 15, up 6.6 percent from the same period last year, Florida Realtors data show. Home prices in Miami have risen for five straight months, according to the city’s Association of Realtors.
“Given the significant improvements in housing and unemployment, we think there is room for Florida spreads to tighten,” DeGroot, head of muni research at New York-based JPMorgan, wrote in a June 8 research report.
The fiscal 2012-2013 budget for the state of 18.8 million people bridges a deficit in part by cutting spending 4 percent, according to the report.
For 10-year general obligations of the state, the spread has narrowed by about 50 percent since mid-2009 to about 0.35 percentage point, DeGroot said in an e-mail.
When using a Bloomberg index that also includes the state’s localities, investors demand about 0.56 percentage point of extra yield for Florida debt over AAA securities nationwide, compared with 0.77 points at the start of the year, data compiled by Bloomberg show. The penalty has averaged 0.31 point in the past decade.
Investors are more comfortable with Florida and its municipalities than they were a year ago as the housing market has bottomed out and the state has built up reserves, Daniel Solender, who helps manage $16 billion of munis, including Florida debt, at Lord Abbett & Co., said in an interview from Jersey City, New Jersey.
“For a while there was concern whether it could get worse and now they seem to be stabilizing and they seem very well managed,” Solender said.
Florida debt has earned about 4 percent this year, outpacing 17 of 26 states tracked by S&P index data.
The state and its localities are also paying the least extra yield in four years compared with similarly rated Texas, data compiled by Bloomberg show. An index of 10-year general- obligation debt of Florida bonds was 0.02 percentage point above an index of debt of Texas issuers on June 11, the slimmest difference since 2008.
Texas has a top rating from Moody’s, and S&P’s second- highest rank, at AA+. The state’s jobless rate fell to 6.9 percent in April from a peak of 8.2 percent in 2009.
“There’s more relative value in our mind for the generic Florida credit relative to the generic Texas credit,” Land said. “The rest of the market is probably coming to that conclusion as well.”
Still, Florida’s workforce is 750,000 smaller than its 2007 peak and it is among five states where personal income remains below pre-recession levels, said Amy Baker, top economist for the state Office of Economic and Demographic Research.
“We made a little headway,” she said in a presentation this week in Tallahassee, the capital. The recession “was a little bit deeper, a little bit longer, a little bit tougher on Florida” than state economists originally estimated, she said.
Baker projected Florida will surpass New York as the third- biggest state in 2016 and grow by 5.1 million people by 2030.
“Population continues to be Florida’s primary engine of economic growth,” she said.
Mayors in Jacksonville, West Palm Beach and Tampa said at a conference of the nation’s mayors this week in Orlando that they see signs of recovery though they expect to make additional budget cuts this year. West Palm Beach fees for new construction may reach a six-year high, Mayor Jeri Muoio said in an interview.
“The buzz is good,” she said.
Following are pending sales:
NEW YORK CITY MUNICIPAL WATER FINANCE AUTHORITY is set to borrow $450 million of revenue bonds as soon as next week, according to bond documents. (Added June 15)
LOUISIANA plans to sell about $581 million in general- obligation bonds as soon as next week, according to an offering document. About $144 million will be taxable debt, with the rest tax-free. The proceeds will be used for refunding. Moody’s rates the debt Aa2, third-highest. (Added June 14)
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