Munis firm as investors flock to Treasuries amid Japan crises; Lubbock sells $144.43 million

By Sheri Kasprzak

New York, March 15 - Municipals got a boost on Tuesday as investors fled the stock market and moved to Treasuries in the wake of the devastation following Japan's earthquake, market insiders said.

"It's sort of a byproduct of better Treasuries," said one trader of the improvement in muni bonds.

"Investors are getting out of stocks because they're looking for safer investments. Treasuries are benefitting from this, and we're benefitting as a result."

Short bonds were seen better by 7 to 8 basis points, and longer maturities were improved by about 3 to 4 bps, the trader said.

Investor reaction slow

The fundamentals of the muni market are improving, but investors have been slow to recognize this, said the muni bond team at DWS Investments in a report released Tuesday.

"Budget planners within state and local governments are reducing expenses," wrote the team, which includes Philip G. Condon, head of municipal bond portfolio management; Carol L. Flynn, head of municipal bond research; Ashton P. Goodfield, head of municipal bond trading; and Anthony Parish, fixed-income product specialist.

"Significant cuts in state general-fund spending during fiscal years 2009 and 2010 have brought state spending to a level that's 6.2% lower than the pre-recession 2008 level. This was the first time there have been two consecutive years of cuts, going back to 1979, which is as far back as the records go."

The DWS muni team said cities have taken various steps to cut costs including reducing workforce and delaying capital projects.

Additionally, preliminary figures for the fourth quarter of 2010 show that state tax collections were up 6.9% year-over-year.

"If the final numbers hold, that would represent that strongest growth since the second quarter of 2006," said the team.

Given reduced expenses and improved revenues, the muni team said the big picture indicates that macro conditions are favorable for muni issuers.

"We suspect if the municipal Chicken Little keep crying, 'The sky is falling,' their predictions will increasingly appear to be unsubstantiated by actual data," the municipal team wrote.

"However, in our view, investors are right to be concerned about several macro forces and potentially many issuer-specific problems as well."

Lubbock sells $144.43 million

Heading up the day's primary action, the City of Lubbock, Texas, priced $144.43 million of series 2011 general obligation bonds and revenue certificates of obligation (Aa2/AA+/AA+), said a pricing sheet.

The sale included $13.53 million of series 2011 G.O. bonds, $16.245 million of series 2011 G.O. refunding bonds and $114.655 million of series 2011 tax and waterworks system revenue certificates of obligation.

The 2011 G.O. bonds are due 2012 to 2031 with 3% to 4.875% coupons.

The 2011 G.O. refunding bonds are due 2012 to 2022 with 2% to 5% coupons.

The 2011 revenue certificates of obligation are due 2012 to 2031 with 3% to 5% coupons.

Morgan Keegan & Co. Inc. was the senior manager. The co-managers were FirstSouthwest Co. and Oppenheimer & Co. Inc.

Proceeds will be used to refund debt and to finance public safety, street and water, sewer and storm utilities improvements.

Wake County brings G.O. bonds

Elsewhere, Wake County, N.C., priced $116.8 million of series 2011 G.O. public improvement bonds on Tuesday, said a pricing sheet.

The bonds (Aaa/AAA/AAA) were sold competitively. J.P. Morgan Securities LLC won the bid with a 3.36% true interest cost.

"In North Carolina, you have to be below AAA-rated to not sell by competitive bid," said Nicole Kreiser, the county's debt and capital director.

"It's the county's philosophy to competitive bid our sales, so it's not inconsistent with the law."

The bonds are due 2012 to 2030 with coupons from 3% to 5%.

Proceeds will be used to construct, expand, renovate and acquire public school facilities and open space projects in the county.

The county seat is Raleigh.

New York water deal ahead

Looking to upcoming sales, the New York City Municipal Water Finance Authority is set to sell $400 million of series 2011GG water and sewer system second general resolution revenue bonds, said a preliminary official statement.

The bonds (Aa2/AA+/AA+) will be sold through senior manager M.R. Beal & Co.

The bonds are due 2012 to 2026.

Proceeds will be used to construct, acquire and expand the city's water and sewer system.

Central Bucks plans sale

Also coming up, the Central Bucks School District of Pennsylvania is scheduled to sell $120.67 million of series 2011 G.O. bonds on March 22, said a preliminary official statement.

The offering includes $49.24 million of series 2011A bonds and $71.43 million of series 2011B bonds.

The bonds (Aa1) will be sold competitively with Janney Montgomery Scott LLC as the financial adviser.

The 2011A bonds are due 2012 to 2026, and the 2011B bonds are due 2012 to 2029.

Proceeds will be used to refund the district's series 2003, 2007 and 2008 bonds for a net present value savings of 10.3%.

The district is based in Doylestown.

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