Municipal yields firm as supply pressure dissipates; less than $3 billion of new issues slated

By Sheri Kasprzak

New York, Nov. 18 - Municipals closed out a volatile week on a firmer note as supply pressure eased, market insiders reported.

Intermediate bonds saw the most improvement. Seven-year yields were seen down nearly 10 basis points, and 10-year yields were seen down 8 bps.

"We've had a breather, and yields seem to be responding to that," said one trader of the break in activity on Thursday and Friday.

"Secondary is still very active with the new deals priced this week, and I suspect that will be the case for the next few weeks."

Alan Schankel, managing director with Janney Montgomery Scott LLC, agreed.

"With dealer inventories now focused on recent new issues, we could see strong secondary activity for a few days ahead of the Thanksgiving holiday," he wrote in a report Friday morning.

"The combination of light forward supply, with less than $3 billion scheduled for next week and beyond, and the widespread price discovery opportunities realized from this week's diverse new issues slate, bode well for munis."

Schankel said that December reinvestments from maturing bonds will top $20 billion, the highest level since August. The monthly average of investments for September, October and November was about $13 billion, Schankel said.

Flight to quality helps munis

The muni market is also getting a boost thanks to a flight to quality, said J.R. Rieger, senior vice president of fixed-income indexes with Standard & Poor's.

"Long-dated taxable municipal securities have moved up over 24% this year," he said.

"Tax-exempt bonds shrugged off the Jefferson County, Ala., bankruptcy filing and absorbed long-awaited new bond issuance. The result is the S&P National AMT-Free Municipal Bond index is up 0.33% this month and is just below a 9% [year-to-date] return."

UConn to bring G.O.s

In the holiday-shortened week, the University of Connecticut will bring to market $220 million of series 2011 general obligation bonds through Loop Capital Markets LLC on Tuesday.

The offering is comprised of $200 million of series 2011A G.O. bonds and $20 million of series 2011B G.O. refunding bonds.

The 2011A bonds are due 2012 to 2031, and the 2011B bonds are due 2014 to 2023.

Proceeds from the bonds (Aa2/AA/AA) will fund projects under the university's infrastructure program as well as refund the university's series 2003A, 2004A and 2005A G.O. bonds.

Connecticut deal ahead

On the horizon, the State of Connecticut is poised to price $500 million of series 2011 transportation infrastructure purposes special tax obligation bonds, said a preliminary official statement.

The deal includes $250 million of series 2011A bonds and $250 million of series 2011B refunding bonds.

The 2011A bonds are due 2012 to 2031, and the 2011B bonds are due 2012 to 2023.

The bonds (Aa3/AA/AA) will be sold on a negotiated basis with Goldman Sachs & Co. as the lead manager.

Proceeds from the deal will be used, together with anticipated federal grants, to finance transportation infrastructure projects throughout the state. The proceeds will also be used to refund existing debt.

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