New York, which is borrowing $850 million as soon as next week, has seen its bonds rally the most in five years on bets that federal aid and better-than-projected Wall Street earnings will help the most-populous U.S. city absorb Hurricane Sandy’s recovery costs.
Almost six weeks after the biggest Atlantic storm in history swamped coastal neighborhoods and caused $19 billion in damage in the city, there’s no letup in demand for New York bonds as municipal yields reach 47-year lows. The interest-rate penalty on the city’s issuers reached the smallest since 2007 this week, data compiled by Bloomberg show.
The metropolitan area’s $1.3 trillion economy, larger than Mexico’s, will shield it against the impact from the deadly storm, which officials expect to create construction jobs and business as residents replace destroyed vehicles and appliances. At the same time, Wall Street, which accounts for 7 percent of city tax revenue, is poised to earn more than $20 billion in 2012, twice the amount the city anticipated, state Comptroller Thomas DiNapoli said this week.
“We often see pretty robust economic growth post some of these natural disasters,” said Peter Hayes, head of muni debt at New York-based BlackRock Inc., which oversees about $105 billion of munis. “The expectation is going to be similar here.”
Mayor Michael Bloomberg, 70, said Nov. 30 that he didn’t see a need to lower the city’s estimate for tax revenue following the storm. Last month he ordered $1.6 billion of cuts after a $635 million hole opened in this year’s $69 billion budget when a judge stopped the city from selling 2,000 new taxi medallions. He still has to close a $1.2 billion deficit for the year that starts July 1.
President Barack Obama may seek as much as $60 billion of aid from Congress to help states with recovery costs, Senate Majority Leader Harry Reid, a Nevada Democrat, said this week. The storm hit Oct. 29 with winds as strong as 100 miles (160 kilometers) an hour, killing more than 40 people in New York’s five boroughs. A tidal surge flooded the subway system and underground utilities and left thousands homeless.
“The effects of Sandy, while devastating certainly on a personal basis for a lot folks in the city, at the city’s financial level it’s a bump in the road,” said Blake Miller, portfolio manager at Neuberger Berman Group LLC in New York, which oversees $10 billion of munis.
Miller said he didn’t expect a lasting impact on the city’s personal-income tax collections or financial-industry revenue.
Investors demand 0.17 percentage point of extra yield to buy 10-year debt sold by New York City issuers compared with benchmark munis, the smallest gap since mid-2007, data compiled by Bloomberg show.
The city is benefiting from a rally in the $3.7 trillion muni market as investors anticipate that tax rates will rise. Yields on 20-year tax-exempts fell to 3.27 percent last week, the lowest since 1965, a Bond Buyer index shows.
New York City bonds sell frequently in the marketplace, a benefit to investors, said Hayes, who also praised the metropolis’s debt management.
The city plans to sell tax-exempt general obligations as soon as next week to refund debt, according to the Office of Management and Budget. Moody’s Investors Service rates New York City Aa2, its third-highest grade.
The mayor last week met congressional leaders in Washington to request $9.8 billion of aid to help repair infrastructure and recover economic losses. Reimbursements from the Federal Emergency Management Agency and private insurance would cover only $9.2 billion of the $19 billion in total public and private loses, Bloomberg said in a letter to state Congress members.
While power losses and damaged buildings hurt city commerce and reduced wages and sales-tax revenue, “the good news is that in the third quarter Wall Street did better than expected and that’s a big driver of our economy,” the mayor said Nov. 30 on WOR radio.
New York Stock Exchange members’ broker-dealer operations had third-quarter profits totaling more than $7 billion, contributing to the third-best performance on record for the first nine months of a year, DiNapoli said this week.
Financial companies still face pressure to cut costs, contributing to lift the city’s jobless rate above the national level. New York-based Citigroup Inc. this week said it will eliminate 11,000 positions globally to reduce expenses.
The city’s 9.3 percent seasonally adjusted unemployment rate for October was down from 9.5 percent in September, yet higher than the 7.9 percent U.S. average.
“If anything can be viewed as a silver lining, it is that thousands of jobs will be created as we rebuild,” city Comptroller John Liu said yesterday at a breakfast forum. He said at least 25,000 jobs would be spurred by the infusion of federal emergency aid and the use of $500 million in funds from municipal bonds to repair schools and hospitals.
His office has approved $728 million in spending to repair homes and boardwalks, and fix escalators and elevators in Manhattan’s Staten Island ferry terminal, he said.
The mayor is founder and majority owner of Bloomberg News parent Bloomberg LP.
Following are pending municipal sales:
TRIBOROUGH BRIDGE AND TUNNEL AUTHORITY, part of New York’s Metropolitan Transportation Authority, is set to sell $904 million of tax-exempt revenue debt as soon as next week, data compiled by Bloomberg show. (Added Dec. 7)