Municipal yields continue to improve; Sugar Land, Texas, sells $98.55 million of certificates

By Sheri Kasprzak

New York, April 19 - Municipals were improved on Tuesday for a sixth straight session as supply remained light, particularly negotiated supply, market insiders reported.

"It's just been a really quiet day," said one trader, who noted that yields were better by 2 to 3 basis points across the yield curve in the absence of significant supply.

"Everyone's away for the holidays."

The trader noted that even before the holiday-shortened week, new-issue volume was very low, but Passover and Good Friday have all but halted pricing action.

Market insiders are now turning their attention to how reductions in federal spending will impact states' credit ratings.

"While Moody's in an early 2010 report noted that states' ratings aren't directly linked to those of the federal government, there's a clear connection between the two, as states rely on Congress to provide funding for numerous projects, ranging from discretionary transportation expenditures to mandatory Medicare/aid payments," said Guy LeBas, chief fixed-income strategist at Janney Montgomery Scott LLC.

"We expect the ratings agencies will wait until Congress agrees on some budget compromise to identify potential knock-on ratings effects, but the trajectory of states' ratings is more likely to be negative than positive."

Sugar Land brings deal

A few competitive offerings hit the market on Tuesday, but no significant negotiated sales were conducted.

The City of Sugar Land, Texas, led the activity with its competitive sale of $98.55 million of series 2011 combination tax and revenue certificates of obligation.

The COOs are due 2012 to 2030 with term certificates due in 2032, 2035, 2037 and 2041. The serial coupons range from 2% to 5%. The 2032 certificates have a 4.5% coupon, and the 2035 certificates have a 5% coupon. The 2037 certificates have a 4.75% coupon, and the 2041 certificates have a 5% coupon.

Proceeds will be used to construct the city's surface water treatment plant, to make upgrades to the surface water conversion and water supply and to improve surface water transmission lines.

Clarksville prices bonds

The City of Clarksville, Tenn., priced $68.58 million of series 2011 water, sewer and gas revenue refunding bonds, said a pricing sheet.

The bonds (Aa3//AA-) were sold competitively. Mark Hicks, spokesman for the city, said the full details of the sale were not immediately available.

The bonds are due 2012 to 2025 with 3% to 5% coupons.

Proceeds will be used to refund existing debt and to terminate a swap agreement connected to the refunded bonds.

Mayo deal set

Heading up Wednesday's pricing action, the City of Rochester, Minn., plans to bring one of the week's few negotiated offerings. It will sell $290 million of series 2011 health-care facilities revenue bonds for the Mayo Clinic.

The bonds (Aa2/AA/) will be sold through Merrill Lynch and Wells Fargo Securities LLC.

Proceeds will be used to refund the clinic's series 1992 and 2001 bonds.

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