Yields close unchanged as investors show indifference; Granite School brings $102.93 million

By Sheri Kasprzak

New York, July 7 - Municipals closed out Thursday with a yawn as low new issue supply and retail hesitance left the market directionless, said traders.

Yields across the curve were largely unmoved, said one trader reached in the afternoon. Part of the problem, he said, is that retail investors are hesitant to buy longer bonds, but shorter maturities just aren't cutting it.

"The typical strategy [for retail] is to buy short, but short bonds are not yielding enough for them," he said. "They're turning away, maybe waiting until yields go up a bit."

In addition, new issue volume is still much lower than the past several weeks. Just $1.4 billion is expected in total this week.

Credit quality matters

Janney Montgomery Scott LLC municipal credit analyst Tom Kozlik addressed retail's search for yield in his mid-year municipals market review released Thursday.

"While we know many investors are stretching for yield, we do not recommend extending too far out on the credit spectrum unless investors completely understand all credit and security details," Kozlik wrote.

"Investors should keep in mind that a municipal bond sold through a conduit is not necessarily subject to elevated risk because of the conduit. The risk comes from the borrower or obligor and the underlying security."

Kozlik said he recommends that retail investors build their portfolios with strong-quality general obligation, essential service and other credit revenue bonds.

"Very strong quality should be considered at least in the AA category," he noted.

"Bonds in the A rating class can be considered investment-worthy but should be reviewed thoroughly to determine suitability."

Granite School prices G.O.s

Heading up Thursday's primary action, the Granite School District of Utah brought to the table $102.925 million of series 2011 G.O. bonds, said a pricing sheet.

The bonds (Aa1/Aaa) were sold through Wells Fargo Securities LLC.

The bonds are due 2012 to 2031 with 2% to 5% coupons.

Proceeds will be used to construct new school facilities throughout the district, which is based in Salt Lake City.

MTA deal set

Looking at upcoming deals, the Metropolitan Transportation Authority of New York said Thursday that it intends to price $400 million of series 2011A transportation revenue bonds.

The bonds will be sold on a negotiated basis with Bank of America Merrill Lynch and Loop Capital Markets LLC as the lead managers, said a preliminary official statement.

The bonds are due 2012 to 2031 with term bonds, the maturities of which have not been set.

Proceeds will be used to finance transit and commuter projects set forth in the authority's capital plan.

Honolulu preps offering

Heading to the Aloha State, the City and County of Honolulu will bring $312.79 million of series 2011 G.O. bonds, said a preliminary official statement.

The deal includes $137.645 million of series 2011A bonds and $175.145 million of series 2011B bonds.

The bonds (Aa1//AA+) will be sold on a negotiated basis with Bank of America Merrill Lynch and Piper Jaffray & Co. as the senior managers.

The 2011A bonds are due 2016 to 2036, and the 2011B bonds are due 2016 to 2027.

Proceeds will be used to fund capital improvement projects and to refund the city's series 1993A-C, 1994A, 2001A, 2003A, 2004A, 2005A, 2005F and 2007A bonds.

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