Muni yields climb 5 to 6 bps; market preps for more solid pricing action; NYC water sets deal

By Sheri Kasprzak

New York, Nov. 5 - Municipal yields rose by 5 to 6 bps to close out the week, about the same amount that yields dropped on Thursday, said market insiders.

"There's a constant fret over supply," said one trader reached during the afternoon.

"The market seems to be responding to this. Next week is a short week, and new issue supply is still huge. I think the big concern isn't just with the supply, but also with the lack of investor demand, specifically retail demand."

Alan Schankel, managing director at Janney Montgomery Scott LLC, noted that three issues from Los Angeles set to price in the coming week will total about $2.3 billion. Other big sales for the week include $804.285 million of general obligation bonds from the City of Chicago through Loop Capital Markets LLC and Wells Fargo Securities LLC and $500 million of water and sewer system revenue bonds from the New York City Municipal Water Finance Authority. The L.A. deals include an $875.805 million sale of series 2010D senior revenue bonds from the Los Angeles Department of Airports for the Los Angeles International Airport through J.P. Morgan Securities LLC and Ramirez & Co. Inc. and a $118.26 million sale of series 2010 lease revenue bonds from the Municipal Improvement Corp. of Los Angeles.

"ICI fund flows statistics for the week ending Oct. 27 show no surprises with inflows to tax-free muni at $545 million," Schankel said.

"Year-to-date, mutual fund investors have flocked to bond funds with total bond inflows of $274 billion offset by outflows of $50 billion on the equity side, the latter including $84 billion of outflows from domestic and $34 billion of inflows into foreign stock funds."

L.A. to bring big deals

Heading up the flood of primary activity expected in the holiday-shortened week, the Los Angeles Department of Airports is slated to bring $875.805 million in bonds for the Los Angeles International Airport. The bonds (Aa3/AA/AA) will be used to finance capital improvements at the airport, including the addition of taxiways and the expansion of airport facilities, as well as refund commercial paper.

Another big sale from the city comes from the Municipal Improvement Corp. of Los Angeles, which is scheduled to price $118.26 million of series 2010 lease revenue bonds (A2/A1//A+).

The offering includes $31.1 million of series 2010A capital equipment lease revenue bonds and $49.82 million of series 2010B capital equipment recovery zone economic development lease revenue bonds, $18.36 million of series 2010C real property recovery zone economic development lease revenue bonds and $18.975 million of series 2010D capital equipment and real property lease revenue refunding bonds.

De La Rosa & Co. Inc. is the lead manager for the 2010A and 2010D bonds and Siebert Brandford Shank & Co. LLC is the senior manager for the 2010B and 2010C bonds.

Proceeds will be used to retire commercial paper notes and prepay certain certificates of participation.

Chicago to sell G.O.s

Also coming up during the week, the City of Chicago will sell G.O.s in two tranches.

The offering is comprised of $123.155 million of series 2010A G.O. refunding bonds, $213.59 million of series 2010B Build America Bonds and $467.54 million of series 2010C taxable project and refunding bonds.

Loop Capital Markets LLC and Wells Fargo Securities LLC are the senior managers.

Proceeds will finance public right-of-way improvements, economic development enhancement projects, transportation improvements and grants to nonprofit organizations.

NYC water sale set

Coming up on Tuesday, the New York City Municipal Water Finance Authority is scheduled to price $500 million of series 2011CC water and sewer system second general resolution revenue Build America Bonds on Tuesday, said a preliminary official statement.

The bonds (Aa2//AA+) will be sold on a negotiated basis with Ramirez & Co. Inc. as the senior manager.

Proceeds will be used to refund existing commercial paper notes, as well as provide funding for the authority's ongoing capital program.

Virginia PBA deal planned

Also on Tuesday, the Virginia Public Building Authority plans to bring to market $390.945 million of series 2010 public facilities revenue bonds on Tuesday, said a preliminary official statement.

The bonds (Aa1//AA+) will be sold competitively with Public Financial Management Inc. as the financial adviser.

The sale includes $94.115 million of series 2010B-1 tax-exempt bonds, $193.96 million of series 2010B-2 Build America Bonds and $102.87 million of series 2010B-3 tax-exempt refunding bonds.

The 2010B-1 bonds are due 2011 to 2018 and the 2010B-2 bonds are due 2019 to 2030. The 2010B-3 bonds are due 2019 to 2030.

Proceeds will be used to finance the construction, acquisition, improvement, rehabilitation and equipment of public facilities for use by the Commonwealth of Virginia or its agencies, as well as fund the commonwealth's share of grants and regional and local jail and juvenile detention facilities. The rest will be used to refund existing debt.

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