MARKET TALK: Arbitrage BP Munis, Corps, Pick Up 130 BPS: JPM

21st Jun 2010 14:55

1355 GMT [Dow Jones] There are almost $5 bln of municipal obligations backed by BP outstanding, and JPM muni analysts recommend arbitraging the spread between BP's corporate debt and municipal debt to pick up as much as 130 bps. While not traded that often, the largest and most liquid series of the munis are five fixed-rate issues sold in 1990 to refund marine terminal revenue bonds of the Texas City Industrial Development Corp. The bonds are guaranteed by Atlantic Richfield, which merged with BP Amoco in 2000. Activity has returned to the bonds in recent weeks, at levels roughly 130 bps wide of the after-tax yield on BP's corporate debt. "We recommend buying these 10-year Texas City bonds, while shorting 10-year BP corporates, to enjoy the 130 bps spread," the analysts wrote in weekly commentary. "This profit varies depending on the investor's marginal tax rate, but remains positive for all investors in all brackets higher than 15%. ([email protected]) Contact us in New York. Darlene Ross, 212 416-2166; [email protected] (END) Dow Jones Newswires June 21, 2010 09:55 ET (13:55 GMT)