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Muni Debt Sales Jump 37% to $10 Billion, Yields at 8-Week Lows

New York City Transitional Finance Authority, which helps the most populous U.S. city raise funds for capital projects, led states and municipalities selling about $10 billion of debt this week as issuers took advantage of tax-exempt yields falling to two-month lows.

Municipalities sold $7.5 billion last week, according to data compiled by Bloomberg. With borrowers such as Pennsylvania offering $1 billion each, the total amount of issuance increased by more than 36 percent for the week ending today.

Ten-year municipal bonds yielded more than 93 percent of equivalent-maturity Treasuries May 19, the highest ratio since Dec. 1. The more than five-month high occurred as Treasury yields touched the lowest levels this year after investors sought safety on speculation that Europe’s sovereign-debt crisis is worsening.

“Issuers are accelerating their financing plans to take advantage of low costs,” said Alan Schankel, managing director of fixed income at Janney Montgomery Scott in Philadelphia. “Demand has been reasonably strong.”

The value of tax-exempts sold this week rose 36 percent to $6.5 billion, while taxables, buoyed by increasing Build America issues, jumped to $3.5 billion, or 40 percent, from the previous week, according to Bloomberg data.

Taxable, Tax-Exempt Yields

Yields on top-rated 10-year tax-exempts fell 2 basis points to 3.11 percent yesterday, the lowest since March 24, according to Municipal Market Advisors. Taxable debt yields for 10-year securities rated AAA reached 4.56 percent yesterday, the lowest since Dec. 4. A basis point is 0.01 percentage point.

“In the secondary market we’re starting to see a divergence in demand for top-quality bonds and acceptable-quality bonds,” said Neil Klein, who oversees $800 million in municipals as fixed-income senior portfolio manager at Carret Asset Management LLC in New York. “Yields are being driven down by a sense of urgency to grab quality. The muni market is starting to follow suit with what’s happening in Treasuries.”

Ten-year, top-rated general obligation yields have fallen 24 basis points since April 9, according to Bloomberg Fair Market Value data. Yields on comparable A+ rated debt dropped 16 basis points during the same period. Similar-maturity U.S. Treasury yields have fallen 64 basis points. A basis point is 0.01 percentage point.

New York City

The largest deal of the week, New York City Transitional Finance Authority’s $1.14 billion sale May 17, according to the city, included Qualified School Construction notes, tax-exempt debt, conventional taxables and Build America bonds, sold both competitively and through negotiation.

The Build America Bonds made up $420 million of the offering. Notes maturing in 2036 were priced to yield 5.47 percent. That’s 36 basis points below the Build America average yield of 5.83 percent on the day of sale, according to the Wells Fargo Build America Bond Index.

The Municipal Master Index of tax-exempt debt has returned 3.2 percent so far this year, according to the Bank of America Merrill Lynch. That compares with a 10.5 percent return from Build America Bonds and 4.2 percent for the U.S. Treasury Master Index. U.S. corporate debt has gained 4.7 percent, according to the BofA Merrill Lynch Index.

Following are descriptions of pending sales of municipal bonds in the U.S.:

ARIZONA, the U.S. state with the second-fastest growing population, plans to sell $449.3 million in lottery revenue bonds as early as next week. The debt will be secured by state lottery revenue, according to Moody’s. Proceeds from the sale will go to the state general fund to provide “budgetary relief,” said Moody’s, as Arizona confronts a $2.6 billion deficit. The securities, which mature serially from 2013 through 2029, are rated AA- by S&P, the fourth-highest level, and one rung lower by Moody’s at A1. (Updated May 21)

WASHINGTON STATE, home to Seattle and Microsoft Corp., plans to sell $1.1 billion of general obligation Build America Bonds as soon as next week. The securities are backed by vehicle fuel-tax revenue, according to Moody’s. Proceeds from the sale will fund statewide transportation projects. The bonds are rated Aa1 by Moody’s, the second-highest grade. (Added May 20)

MONTGOMERY COUNTY, the home of Bryn Mawr College outside Philadelphia, plans to sell $313.8 million in tax-exempt mortgage revenue bonds through its Industrial Development Authority as soon as next week. Income from the sale will finance the building of a hospital on a former golf course. (Added May 21)

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