Municipals close mixed as Treasuries take a beating; Puerto Rico Sales Tax brings $1 billion

By Sheri Kasprzak

New York, Nov. 30 - Municipals shrugged off the beating Treasuries took on Wednesday following a stock market rally. Muni yields were mostly firmer on the short and intermediate segments of the yield curve, but long bonds were a bit softer, traders reported late in the session.

The solid reception of the week's hefty primary calendar is part of the reason municipals are going their own way rather than following along with Treasuries, said one trader reached during the session.

"Retail has been coming back in force," said one trader of the retail order periods held early in the week for some of the week's larger offerings.

"There's more for them to sink their teeth into than there has been. They're looking for safety, and there's more quality out there."

Ten-year yields were seen down by more than 3 basis points. Five- and seven-year yields were both firmer by more than 2 bps. Twenty-year yields, however, were up by almost 3 bps, and 30-year yields were up by more than 2 bps.

Thirty-year Treasury yields, to offer a comparison, were up more than 10 bps, and 10-year yields were up nearly 8 bps.

Stocks rallied on Wednesday after the Federal Reserve announced that the central banks from the major developed nations would take measures to improve liquidity for some of world's troubled economies. The Dow Jones industrial average soared by more than 490 points.

Puerto Rico deal prices

The week's largest offering came to market on Wednesday. The Puerto Rico Sales Tax Financing Corp. brought to market $1 billion of series 2011C sales tax revenue bonds, said a pricing sheet.

The bonds (/AA-/AA-) were sold through senior manager Citigroup Global Markets Inc.

The bonds are due 2020 to 2033 with term bonds due in 2039, 2040 and 2046. The serial coupons range from 4% to 5%. The 2039 bonds have a 4.75% coupon. The 2040 bonds have a split maturity with a 5% coupon and a 5.25% coupon. The 2046 bonds have a 5% coupon.

The full pricing details were not immediately available Wednesday evening.

Proceeds will be used to redeem or repay before maturity some 2006 appropriation debt.

Philadelphia brings TRANs

Leading the day's competitive action, the City of Philadelphia came to market with $173 million of series 2011-2012A tax and revenue anticipation notes, said a pricing sheet.

The notes (MIG 1/SP-1+/) are due June 29, 2012, and bear interest at 2% to yield 0.35%.

The notes were sold competitively with Citigroup taking $75 million of the notes and Wells Fargo Securities LLC taking $98 million, said Nancy Winkler, the city's treasurer. Citigroup made three bids for $25 million each at 0.301015%, 0.320501% and 0.370118% true interest costs. Wells Fargo came in with a 0.377209% TIC. Winkler said both firms reoffered the notes at 0.35%.

"The city was able to attract a very broad range of major, conservative institutional investors," Winkler said.

"The investors who approved the credit and put in orders to own the TRANs included many who have not approved the credit in several years, for example Vanguard, Deutsche Bank, Fidelity, Charles Schwab and several smaller asset managers."

The all-in weighted average TIC for the notes was 0.356%, Winkler said, and the interest expense net of premium will be $349.978.14, or a $1.516 million lower interest cost for the city versus its fiscal-year 2011 costs when the city sold $285 million of series 2010-2011 TRANs.

Proceeds will be used to fund routine cash flow needs ahead of the collection of taxes and revenues.

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