Munis weaken as retail remains skittish; just $2 billion of new deals expected in week ahead

By Sheri Kasprzak

New York, Feb. 4 - Municipals once again closed out softer with the long end off by about 4 basis points, said traders. Shorter bonds were weaker by about 1 to 2 bps.

"We're losing retail," said one trader reached during the afternoon.

"Retail makes up such a huge part of the market that when they leave, it has an impact. It puts a lot of pressure on yields."

Weakening Treasuries helped to shove muni yields higher on Friday, noted the trader.

One sellside source reached Friday said he feels that retail investors are still fleeing the market amid fears that defaults and bankruptcies loom in the marketplace.

"It's really no different than people jumping out of stocks when a company is about to go under," he said.

"Munis are a lot safer, and bankruptcies are a lot rarer, and that seems to be what a lot of [retail] investors are missing. It's a good place for yield right now. Rates are still extremely attractive. I believe that as the year goes on and investors start to realize that these fabled bankruptcies just aren't materializing, they'll come back."

A relatively light supply has taken some pressure off yields, and this will continue into the coming week. Alan Schankel, managing director with Janney Montgomery Scott LLC, reported Friday that just $2 billion of new sales are scheduled for the week ahead. Only $3.3 billion of new offerings priced during the week just ended.

South Carolina gears up

Heading up the light primary calendar in the coming week is a multi-tranche $468.93 million offering of series 2011 general obligation bonds out of the State of South Carolina.

The competitive offering is set to price on Wednesday.

The deal includes $197.235 million of series 2011A G.O. state school facilities refunding bonds, $126.295 million of series 2011A G.O. state capital improvement refunding bonds, $19.225 million of series 2011A state institution refunding bonds for the University of South Carolina, $66.225 million of series 2011B state institution bonds for Clemson University, $15 million of series 2011C state institution bonds for Midlands Technical College, $18.95 million of series 2011D state institution bonds for the University of South Carolina and $26 million of series 2011E state institution bonds for the University of South Carolina.

Proceeds from the sale will be used to finance capital improvements to the higher educational facilities as well as refund existing debt.

Minnesota colleges deal ahead

In other competitive offerings, Minnesota State Colleges and Universities is slated to bring $88.07 million of series 2011 revenue fund bonds (Aa2/AA-/) on Tuesday.

The offering includes $84.67 million of series 2011A tax-exempt bonds and $3.4 million of series 2011B taxable bonds.

The 2011A bonds are due 2012 to 2031, and the 2011B bonds are due 2012 to 2021.

Proceeds will be used to construct a student wellness center and a new parking ramp as well as renovate resident halls and dining halls at various state universities, colleges and community colleges.

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