NEW YORK – Massachusetts, whose reserve dwindled by more than half last year, plans to sell $250 million in fixed-rate, tax-exempt bonds with yields at an eight-week high.
The state’s 10-year general-obligation yield rose to 3.48 percent on Tuesday, the highest since April 20, according to Bloomberg Fair Market Value data. The yield difference over top-rated obligations widened 4 basis points to 27 basis points in the period, according to data compiled by Bloomberg. A basis point is 0.01 percentage point.
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Massachusetts drained its reserve from $2.1 billion to $841 million in the year that ended in June 2009 as the U.S. recession sapped revenue, according to Moody’s Investors Service. Moody’s and Fitch Ratings both grade the state’s debt second-highest, at Aa1 and AA+, respectively.
“Significant use of reserves to close fiscal 2009 budget gap has reduced financial flexibility, although a sizeable reserve still remains,” Moody’s said in a report June 16.
The week’s fourth-largest tax-exempt deal comes the month after Congress stripped a provision from legislation that would have extended about $24 billion of Medicaid payments beyond Dec. 31.
Massachusetts, which incorporated the anticipated federal aid in its budget for the fiscal year beginning July 1, now faces a $687 million deficit, according to state Sen. Steven A. Panagiotakos, D-Lowell.
Rhode Island’s budget for the fiscal year that starts July 1 also included $108 million in expected federal aid. The state sold $144.7 million in general-obligation bonds on May 12.
‘Taking Pause’
“Investors may be taking pause, trying to wait this out and get more clarification on how it’s going to affect individual states,” said Richard Ciccarone, chief research officer of Oak Brook, Ill.-based McDonnell Investment Management, which oversees $7 billion of municipal debt.
Average yields on tax-exempt, 10-year debt have jumped 7 basis points in the past week, according to Municipal Market Advisors. On Wednesday, top-rated debt fell for the first time in a week, slipping 1 basis point to 3.19 percent.
In Massachusetts’s most recent issue of tax-exempt general obligations, in May 2009, debt maturing in 2019 was priced to yield 3.08 percent, with investors paying more than 116 cents on the dollar. The yield was 2 basis points below similar-maturity AAA general obligations, according to Bloomberg Fair Market Value Data.
Those securities traded June 15 at an average yield of 3.14 percent, 19 basis points above top-rated debt of similar maturity, according to the benchmark.
More than half of the $2.4 billion in debt Massachusetts sold in 2009 was bought by individual investors even amid volatile market conditions, said Colin McNaught, the state’s assistant treasurer for debt management. Top-rated 10-year debt started 2009 yielding about 3.91 percent and touched 2.95 percent in October, the lowest since at least 1996, according to MMA data.
This week’s sale is the last issue for Massachusetts this fiscal year, McNaught said. The state plans $1.625 billion in debt sales during the 2011 fiscal year, which starts July 1.
