Munis hold steady on Treasury losses and low trading volume; light calendar ahead

By Cristal Cody

Tupelo, Miss., Aug. 5 - Municipal bond yields held steady on Friday after a midweek rally but municipal credit default swaps spreads widened, according to bond sources.

"Finished the week really quiet. Basically, the benchmark yields are unchanged despite a sloppy Treasury market," the source said. "Munis held steady today, while the rest of the bond world kind of slipped."

Treasuries fell on Friday, erasing gains from earlier in the week as safe haven buying slowed. The 10-year note yield rose to 2.56% from 2.4%. The 30-year bond yield moved up to 3.84% from 3.67% on Friday.

Markit Group Ltd. said in a report on Friday that "while U.S. CDS have seemed to stabilize in the aftermath of the debt ceiling deal, municipal CDS spreads have widened."

The company said in the report that municipal CDS spreads "showed significant sensitivity during the flight to quality move out of risky assets in April-May 2010. This week was no different."

For example, the Markit MCDX 10-year has widened by 15 basis points since last week, the firm said.

"Other factors impacting sentiment negatively in the muni market were the state of Minnesota being placed on negative outlook by Moody's and the Chapter 9 bankruptcy filing of Central Falls, R.I.," Market Group added.

Coming up, primary activity likely will stay light in the second week of August. About $2 billion to $3 billion in new bond sales are expected in the week ahead, a source said.

"There's a very small calendar next week," the source said. "No mega deals."

Hamden to sell G.O.s

One small deal in the works is planned by the Town of Hamden in Connecticut. It intends to offer $56.385 million in general obligation bonds (A2/A/A), according to a preliminary official statement.

The deal includes $34 million in series 2011A general obligation bonds with serial maturities from 2012 through 2031 and $22.385 million in series 2011B general obligation refunding bonds due from 2012 through 2020.

The bonds will price through a negotiated sale managed by Morgan Keegan & Co.

Proceed will be used to pay for capital improvements and to refund outstanding general obligation bonds.

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