New Jersey Sells $216 Million Debt as Issuance Poised for Jump

New Jersey, where public college enrollment grew by a third in the past decade, sold $216 million in bonds for university construction to cap a holiday-shortened week, as municipal borrowing prepared to rebound from a two-month low.

U.S. cities and states have scheduled about $7.7 billion in debt sales after this week’s volume ebbed to $4.7 billion, the lowest since April 9, according to data compiled by Bloomberg.

The sale came as yields on 10-year top-rated, tax-exempt general obligations rose to 3.14 percent from 3.12 percent. The increase was the first change in four days, the longest such streak since a seven-day stretch in mid-March, according to surveys by Concord, Massachusetts-based Municipal Market Advisors.

“It’s like the summer doldrums have set in,” said Laura LaRosa, who helps manage $4.5 billion in municipal debt at Glenmede Investment and Wealth Management in Philadelphia. “There’s a lack of huge supply, not a lot of new issuance. This is like a Friday in the summer.”

In New Jersey, the Economic Development Authority’s borrowing on behalf of Montclair State University, second in full-time students behind Rutgers, will finance dormitory and dining facilities backed by user fees, according to preliminary offering documents.

Enrollment in New Jersey’s public colleges and universities rose to 348,934 in 2009, from 263,576 in 1999, according to data from the state Commission on Higher Education.

Borrowing Costs

This week’s slim issuance calendar could be good for New Jersey’s borrowing costs, LaRosa said. The bonds are rated Baa3 by Moody’s Investors Service, the lowest investment grade.

“That does help a little bit,” LaRosa said. “When people just need to get money invested, they sometimes look to lower-rated credit.”

The bulk of the sale, maturing in 2042, is priced to yield 5.93 percent. That’s 142 basis points lower than 30-year general-obligations rated BBB, one level higher, according to Bloomberg Fair Market Value data.

Shorter-term maturities cost the state more, relative to similar securities. The 10-year debt priced to yield 5.04 percent, 45 basis points below BBB general obligations and 190 basis points above similar top-rated tax-exempts yesterday, according to Municipal Market Advisors.

Municipal debt has returned 3.3 percent since the beginning of the year. That’s about 58 percent less than the same period a year earlier, according to the Bank of America Merrill Lynch Municipal Master Index. U.S. corporate debt had the worst May since 2008, according to the BofA Merrill Lynch index, losing 0.57 percent compared with a 4.34 percent return a year earlier.

U.S. Treasuries returned 3.6 percent since Dec. 31, compared with a loss of 4.7 percent in the first five months of 2009, according to BofA Merrill Lynch. Investors have sought the perceived safety of U.S. government debt amid concern that some European nations may default on their debts.

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