Muni yields end flat with firmer tone; Los Angeles reportedly brings $1.17 billion in TRANs

By Sheri Kasprzak

New York, June 30 - Municipal yields were barely moved on Wednesday with a firmer tone across the yield curve, said traders, as primary action continued to dominate market activity.

"I'd call it flat," said one trader. "If there's any movement at all, it's very slight.

Another trader reported that a firmer tone overall may be credited to improved Treasuries.

"I think it's fair to say it's flat, but Treasuries were better, so there seems to be a firmer tone."

Investors are still leery of municipals thanks to fears of widespread muni defaults, but one municipal strategist said those fears are largely unfounded.

Jim Colby, senior municipal strategist at Van Eck Global, said Wednesday that it is unlikely that there will be a wave of defaults or municipal bankruptcies in the coming months.

A combination of factors, including the looming possibility of higher tax rates, could mean that municipals will outperform Treasuries during the second half of 2010.

"Taxes are going to go up on a local, state and federal level to meet budget shortfalls and to pay for new reforms, including that which is taking place in health care," Colby said.

"As taxes go up, municipal bonds, which offer income that is exempt from federal taxes, and often from state and local taxes as well, are going to become increasingly more valuable, especially to those investors who will be most affected by the rising rates."

L.A. sells $1.17 billion

In the primary market, the City of Los Angeles reportedly priced $1.165 billion in series 2010 tax and revenue anticipation notes, said a market source familiar with the deal. The city had intended to sell $1.2 billion of the notes.

The full terms of the offering could not be ascertained by press time Wednesday.

The notes (MIG 1/SP-1+/F1+) were sold through J.P. Morgan Securities Inc. and Bank of America Merrill Lynch with Loop Capital Markets LLC and RBC Capital Markets Corp. as the co-managers.

The offering included $291.945 million in notes due March 31, 2011, $266.145 million in notes due April 21, 2011, $316.41 million in notes due May 31, 2011 and $290.53 million in notes due June 30, 2011.

The coupons could not be determined by press time, but the initial offering prices are 101.055 for the March 2011 notes, 101.095 for the April 2011 notes, 101.068 for the May 2011 notes and 101.115 for the June 2011 notes.

Proceeds will be used to fund general operating expenses for the 2010-2011 fiscal year.

Empire State bonds price

Elsewhere, the Empire State Development Corp. priced Wednesday $650 million in series 2010 refunding Liberty bonds, said a term sheet.

The bonds (/AA/AA) were sold on a negotiated basis with Bank of America Merrill Lynch as the senior manager.

The sale included $351.6 million in series 2010-1 second-priority bonds, $87.1 million in series 2010-2 second-priority bonds and $211.3 million in series 2010-3 second-priority bonds.

The 2010-1 bonds are due 2044 and 2046. The 2044 bonds have a 5.125% coupon, priced at 98.036. The 2046 bonds have a 5.625% coupon, priced at 102.78.

The 2010-2 bonds are due 2047 and have a 5.625% coupon, priced at par.

The 2010-3 bonds are due 2049 and have a 6.375% coupon, priced at par.

Proceeds will be used to refund bonds used to finance the construction of One Bryant Park, also known as the Bank of America Tower, a certified commercial tower.

Based in New York, the corporation finances economic development in the city.

MTA brings bonds

In other New York news, the Metropolitan Transportation Authority priced $600 million in series 2010C transportation revenue bonds, said a pricing sheet.

The bonds (A2/A/A+) were sold on a negotiated basis with Barclays Capital Inc. as the senior manager.

The offering included $555 million in series 2010C-1 Build America Bonds and $45 million in series 2010C-2 tax-exempt bonds.

The 2010C-1 bonds are due 2016 to 2021 with term bonds due 2026, 2030 and 2040. The coupons range from 4.276% to 5.369%, all priced at par. The 2026 bonds have a 6.2% coupon, and the 2030 bonds have a 6.587% coupon, both priced at par. The 2040 bonds have a 6.687% coupon, also priced at par.

The 2010C-2 bonds are due 2011 to 2015 with coupons from 2% to 5%. The initial offering prices were not immediately available.

Proceeds will be used to finance transit and commuter projects.

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